Behind the Bush Bust
By PAUL KRUGMAN
Published: July 7, 2008
By huge margins, Americans think the economy is in lousy shape — and they blame President Bush. This fact, more than anything else, makes it hard to see how the Democrats can lose this election.
But is the public right to be so disgusted with Mr. Bush’s economic leadership? Not exactly. We really do have a lousy economy, a fact of which Mr. Bush seems spectacularly unaware. But that’s not the same thing as saying that the bad economy is Mr. Bush’s fault.
On the other hand, there’s a certain rough justice in the public’s attitude. Other politicians besides Mr. Bush share the blame for the mess we’re in — but most of them are Republicans.
First things first: pay no attention to apologists who try to defend the Bush economic record. Since 2001, economic conditions have alternated between so-so and outright bad: a recession, followed by one of the weakest expansions since World War II, and then by a renewed job slump that isn’t officially a recession yet, but certainly feels like one.
Over all, Mr. Bush will be lucky to leave office with a net gain of five million jobs, far short of the number needed to keep up with population growth. For comparison, Bill Clinton presided over an economy that added 22 million jobs.
And what does Mr. Bush have to say about this dismal record? “I think when people take a look back at this moment in our economic history, they’ll recognize tax cuts work.” Clueless to the end.
Yet even liberal economists have a hard time arguing that Mr. Bush’s cluelessness actually caused the poor economic performance on his watch. Tax cuts didn’t work, but they didn’t create the Bush bust. So what did?
At the top of my list of causes for the lousy economy are three factors: the housing bubble and its aftermath, rising health care costs and soaring raw materials prices. I’ve written a lot about housing, so today let’s talk about the others.
Most public discussion of health care focuses on the problems of the uninsured and underinsured. But insurance premiums are also a major business expense: auto makers famously spend more on health care than they do on steel.
One of the underemphasized keys to the Clinton boom, I’d argue, was the way the cost disease of health care went into remission between 1993 and 2000. For a while, the spread of managed care put a lid on premiums, encouraging companies to expand their work forces.
But premiums surged again after 2000, imposing huge new burdens on business. It’s a good bet that this played an important role in weak job creation.
What about raw materials prices? During the Clinton years basic commodities stayed cheap by historical standards. Since then, however, food and energy prices have exploded, directly lopping about 5 percent off the typical American family’s real income, and raising business costs throughout the economy.
Much of this pain could have been avoided.
If Bill Clinton’s attempt to reform health care had succeeded, the U.S. economy would be in much better shape today. But the attempt failed — and let’s remember why. Yes, the Clinton administration botched the politics. But it was Republicans in Congress who blocked reform, as Newt Gingrich pursued a strategy of “coagulation” designed to “clot everyone away” from Mr. Clinton.
As for high food and fuel prices, they’re mainly the result of growing demand from China and other emerging economies. But oil prices wouldn’t be as high as they are, and the United States would have been much less vulnerable to the current price spike, if we had taken steps in the past to limit our oil consumption.
Mr. Bush certainly deserves some blame here, and not just for his destructive embrace of ethanol as the answer to our energy problems. After 9/11 he could easily have called for higher gas taxes and fuel efficiency standards as a national security measure, but the thought never seems to have crossed his mind.
Still, in energy as in health care the biggest missed opportunities came 15 or more years ago, when Mr. Gingrich and other conservative Republicans in Congress, aided by Democrats with ties to energy-intensive industries, blocked conservation measures.
So here’s the bottom line: Mr. Bush deserves some blame for the poor performance of the economy on his watch, but much of the blame lies with other, earlier political figures, who squandered chances for reform. As it happens, however, most though not all of the politicians responsible for our current economic difficulties were Republicans.
And bear in mind that John McCain has gone to great lengths to affirm his support for Republican economic orthodoxy. So he’ll have no reason to complain if, as seems likely, the economy costs him the election.