(This is a political post, a rant if you will, so if you are the sensitive type only looking for investment thoughts, skip this post... I suspect I'll end up with the anti-American label after this and my readership from the Red States is going to drop by 90%. Hopefully my readership from the Blue States will go up 90% to make up for it. Or maybe not ;) ) [LONG POST]
prove Bush's strong economic performance in his
first term. Funniest thing is how Larry Kudlow will
always be remembered for supporting this book.
Image from listal.)
Liberals mostly hate him. Conservatives mostly love him. But when it's all said and done, even conservatives will likely end up admitting that George W. Bush is one of the worst American presidents in the last century. Most conservatives will likely switch their (currently positive) view of Bush in a decade. We already see conservative publications such as The Economist, which was a big fan of Bush, admitting that Bush was largely a failure, even calling him a fratboy. If it weren't for Nixon's grossly illegal actions that undermined the state--actions I consider a serious threat to democracy--I would easily consider George Bush to be the worst in the post-war era. But because of Nixon, I don't think Bush is the worst since World War II. He is also not the worst of all time since there were some presidents in the 1800's who were terrible (but it's hard to judge distant past leaders based on my present values.)
Bush's Legacy: The Invasion of Iraq
George Bush came to power largely on the back of strong support from his Christian base (Bush is rare in that, for most of his two terms, he never vetoed any bill. But the first one that he did veto was a stem-cell research bill and it shows his econopolical stance.) So it shouldn't be surprising to see his terms being run not by Bush, but by Dick Cheney. No one can prove any of this but it seems, in my eyes, that the policies were initiated by Cheney and his inner circle--the so-called neoconservatives (the neo-cons are very centrist and have ideals that come from both liberalism and conservatism.) This is most visible when it comes to the invasion of Iraq, which is essentially what Bush will be remembered for. Not only did he invade a country that did not attack America or its citizens, but he shifted US foreign policy to that of an open-ended perpetual war (for example, there has never been an exit strategy for Iraq.)
Bush never considered the invasion of Iraq to be a cornerstone of his presidency, and didn't say much during leadership debates. But it was something that was on the drawing board of Cheney's close-knit group. The invasion was favoured by superhawks such as Richard Perle and Paul Wolfowitz.
In order to build support for the invasion, the US government ended up conducting the largest propaganda campaign in modern American history. Americans, whom some polls indicated can't even locate Iraq on the map or even know its political nature, were all of a sudden convinced that Iraq had weapons of mass destruction. All this without any sort of proof, and with most other countries not fooled and experts on the matter not supporting the WMD argument at all. It is truly remarkable how much was accomplished, with even the liberal New York Times, no fan of Bush, falling for the lies. Articles pumping the WMD case was given star-like attention at the paper. What the US government accomplished is on par with the propaganda initiated by the Chinese government through Xinhua, their media monopoly.
Thankfully, my country, Canada, didn't fall for the lies and stayed out of Iraq. Canada was politically penalized by the US government but our Liberal government weren't on good terms anyway (partly due to unrelated trade disputes over lumber and ideological conflicts.) Unfortunately, many others fell for the propaganda, with Britain and Italy being the biggest supporters. Yes, there was the coalation of the willing, consisting of countries no one has heard of, many of them dictatorships and totalitarian regimes. But everyone pretty much knew that these states were simply in it as quid pro quid, with USA promising so-called aid (most of the aid is of military nature and is used to suppress and abuse the citizens--good examples are the Central Asian states, which are run by monsters.)
The invasion of Iraq, needless to say, has been a total disaster. On top of ending up with a cost that will likely approach $1 trillion or more--money that might have helped more if spent in the US, especially to combat issues such as the current financial crisis--USA lost a lot of political respect and clout. Fortunately, the latter can be regained easily because America is still the freest country on earth, and one of the most democratic and egalitarian, and non-Americans will respect America as long as government actions aren't extreme.
The Iraqi invasion also ended up costing 4228 American deaths and 90,000 civilian Iraqi deaths. The Bush administration is still of the view that Iraq has WMD but that's just trying to save face and avoiding responsibility for deaths.
The problem with warmongers and war profiteers is that they always leave the mess to someone else for them to clean up. I guess one shouldn't expect hawks to clean up the mess, after all when was the last time you saw an eagle stick around to clean up? Iraq, although free from one tyrant, Saddam Hussein, is falling under the tyranny of another sort, the Islamic fundamentalists. All the leading parties, including the one in power now and supported by USA and the coalition, is a religious fundamentalist party and there is a high probability of Iraq turning into a theocratic state. My guess is that, if America leaves Iraq, there will be a civil war and it may split into three states: Kurdistan, one dominated by Sunnis, and another ruled by Shiites. I have been totally against the war from day one but I don't think USA should withdraw from Iraq (or downgrade and start a proxy war.) Bush opened a pandora's box and you can't go back to how things were. It will be costly, both in terms of dollars (USA might have to spend another $500 billion to $1 trillion over the next decade) and in terms of casulties, but I see no other way.
Colin Powell implied that the Iraq war was his worst mistake of his life. He basically lost his reputation and face but it will haunt Bush even more.
I think it would have been obvious to anyone, especially knowing some of his actions as Texas governor (e.g. signing off deaths to almost every convicted criminal that crossed his desk--this while studies kept showing innocents being convicted of serious charges and concern over discrimination in the legal system,) that Bush doesn't know a thing about freedoms or liberties even if Lady Liberty was staring him in his face. Nevertheless, it was quite a shock to many, including me, to see how far Bush went to strip freedoms--and I'm not even in America. Fortunately the legal system in America is strong and the courts tend to reverse presidental actions in the long run; but it is still kind of crazy and damages anyone targetted by the government.
The most contentious, of course, is the prison in Guantanamo Bay. As recently as the late 90's, it would have been ridiculous to imagine that USA would set up a prison system outside the country in order to circumvent the Constitution. I'm not a legal expert but my impression is that the US Constitution and nearly all laws only apply to the government if it is conducting actions on US soil (there might be some exceptions.)
In order to circumvent US law, George Bush set up a jail in Guantanamo Bay, Cuba. Ignoring the fact that Guantanamo Bay is a disputed territory--Cuba says USA illegally occupies through past contracts that it doesn't view as valid--what is new is the fact that it is run and maintained by the US government. In the past, USA has attempted to circumvent US law by passing prisoners or anyone in its custody to its client states known for using torture and other horrible methods, such as Egypt, Jordan, and Kuwait, among others. Well, unlike that situation, for the first time ever, USA decided to run things itself and designed the jail at Guantanamo Bay to be outside the reach of US law.
There is a good reason the new apparatus was set up. The US government was going to do another thing that would have been unimaginable as recently as 10 years ago. It was well on its way to holding suspects without charges or any proof of wrondoing (if they had proof, they would charge them in a court of law so it wouldn't be an issue.) Basically, the Bush administration was trying to strip Habeas Corpus, a cornerstone of modern law which prevents the state from arbitrarily holding you, from the legal system. The US courts initially acquiesed to Bush and let him create all sorts of exceptions, including calling someone as unlawful combatant (whatever that means)--but the courts reversed their position over time. Well, if all else fails and the court doesn't grant you the power to do whatever you wanted, then using a non-US location like Guantanamo Bay would have worked so I'm sure that was the thinking behind the strategy. It's kind of scary to think that the government can just go to some island in the middle of nowhere, surrounded by heavily armed Cuban soldiers on one side, and infested with sharks on the other side, and do whatever it wants. This was not supposed to happen in America--or so I would have thought.
But many Americans outside the activists and some libertarians never seemed to care about Guantanamo Bay. If you complained about Guantanmo Bay, you were more likely to be labelled a terrorist sympathizer than a defender of freedom. It seems logical why the mainstream and the centrists did not care about what was unfolding: It doesn't really apply to American citizens. What the US government was doing was seizing non-Americans and holding them without charges or any proof. So Guantanamo Bay wasn't as much of a threat to Americans as to liberties in general.
But, not to be outdone, the Bush administration started ignoring rights of Americans as well. The most serious damage to civil liberties in modern American history was the following, which few paid attention to.
If you thought the Guantanamo Bay actions were hard to believe, the Bush administration did something truly remarkable. Something that I personally would have never expected (I was obviously wrong in believing that America supported strong individual freedom.)
The most serious action to harm American liberty is not Guantanamo Bay. Instead, it is an obscure case involving Jose Padilla. George Bush, no freedom loving person he is, held Jose Padilla, an accused terrorist, without charges (mostly on some navy ship from what I understand.) This is a very serious issue from a liberties point of view. It is ridiculous for the government to hold someone without charges. If they do so, then the legal system is meaningless. If the government can just grab you and hold you without charging you with anything, then you are living in a totalitarian regime, no if's or but's. This case is different from the Guantanamo Bay controversy because Jose Padilla is an American citizen. Very few, except some cynics, would have expected the US government to hold its own citizens at will, simply by labelling them an unlawful enemy combantant--incidentally a term that the government itself just made up a few years earlier.
So, now you had the case where non-Americans can be held at will on Guantanamo Bay; and Americans can be held without charges as well. I'll bet many reading this, from America, may not have known that. I mean, the whole legal system would be a joke if the government can hold you at will without proving anything. I'm pretty sure someone like Thomas Jefferson or Sam Adams would be rolling in their graves. The Constitution and other laws of the land is there is restrict the power of the government. If the government can circumvent them, the government can almost end up doing anything it wants to anyone. It should be noted that Democrats, as well as so-called liberty-loving Republicans, approved of everything Bush was doing. The infamous Patriot Act, which I'm not going to go into but just realize that it also strips liberties, was passed with minimal dissent from Congress and Senate (it was reaffirmed later on, after the 9/11 panic had died down, which means everyone was totally in favour of it.)
Anyone that is freedom-oriented will have a hard time having any faith in George Bush after realizing what he actually accomplished, and what he attempted to accomplish and failed.
(Fortunately there is some progress being made. Barack Obama says he will dismantle Guantanamo Bay but it remains to be seen. Furthermore, the US courts have ruled against Bush with increasing frequency. So the legal system in America is still doing a good job, albeit very slowly. Overall, it remains to be seen if Obama and future administrations will grossly abuse the newly gained powers, particularly from the Patriot Act. If there is one thing that governments love, it's to grow really big and gain as much power as possible.)
Bush's Boom Years
If most of the foreign policy was driven by Dick Cheney, Condoleeza Rice, et al, it's not clear who was driving his economic policy. George Bush was not a good businessperson and his businesses would have essentially failed if it weren't for some deals, including bailouts by some Middle Eastern interests. Even some of his accomplishments, such as running some key operations of the Texas Rangers baseball team are exaggerated in my opinion. Regardless of whoever was influencing his economic policy, it was largely a disaster.
Contrary to many in the mainstream, I am of the opinion that governments, and hence presidents and prime ministers, do not have much control over the economy, assuming it is not a totalitarian state. What the government does is to shift things one way or another, but it has no absolute control. Therefore, it is too simplistic to solely credit Bill Clinton for the strong growth in the 90's or Ronald Regan in the mid 80's; or to criticize George H Bush for the slump in the early 90's.
Having said that, governments do have an impact on certain matters. A good example is immigration, which is fully controlled by the government and hence the impact on the economy, generally positive, lies with the leaders that implement the policy. Another, usually with negative consequences, is price controls. If the government slaps on price controls, well, whoever that came up with the idea and implemented it deserves blame.
Conservatives who still like Bush like him for this but I think this is perhaps his largest economic mistake. Bush's biggest mistake was the massive tax cuts, unaffectionately known on the left as 'tax cuts for the wealthy' (it was called that because a big chunk of it was dividend and capital gains tax cuts which mostly benefit the wealthy, since around 90% of the stock market is owned by the top 10%.) It was essentially built on the trickle-down economics view favoured by supply siders. Most readers of this blog probably benefitted from it, assuming you actually had capital gains and dividends in the last decade.
There are two big reasons I am not a fan of those cuts (I'm in Canada but if I was in America, this would be view.) The first reason has to do with the consequence of such a large tax cut. The Bush administration basically squandered away whatever notion of surplus the US government had on these cuts. They ended up weakening the balance sheet of the government at a critical time. Although very few look at it this way but in some crude sense, the US government started borrowing from foreign interests to pay for those tax cuts. There are some so-called 'facts' floating around that claim that government income actually went up. Tax cuts can boost government income (a classic example is Russia in the late 90's/early 2000's, which significantly boosted tax revenues after switching to a flat tax system) but there are also cases where it doesn't help the country at all. I would argue that the Bush cuts are the latter case.
So what's the second reason for not liking the tax cuts? The Bush tax cuts, as most supply side tax cuts favouring lower capital gains taxes, boosted investment. This is almost always the case with such tax cuts because, well, if you lower capital gains taxes and dividend taxes, there is greater incentive to invest. Unfortunately, it seems that the Bush administration never realized that it is also possible for such investments to be wasted. It seems like that is what has happened. No one can prove any of this; econopolitics is subjective after all (we still can't agree on the Great Depression!) I share John Hussman's thinking that the tax cuts boosted investment in possibly the worst asset class in America at that time: residential real estate. Yes, the government essentially weakened itself by selling itself to foreign interests, among others, and the benefitiaries ended up investing in an overheated real estate sector.
Increased investment in residential real estate is generally good. Unlike the stock market, which is mostly owned by the wealthy, roughly half the net worth of all residential real estate is owned by the middle and working classes. So investment helps these people, especially if there is excess capital and it pushes down cost of living (some don't consider real estate to be productive but that's a debatable view.) However, USA really didn't need real estate investment in the early to mid-2000's. There was already a housing boom in progress, that started back in the early-90's. If USA was to boost investment, the last place you wanted any more money being thrown at was housing. Yet that is exactly what seems to have happened. This, needless to say, is one of the worst economic policy outcomes.
I'm not saying that George Bush and his team could have predicted where the tax cuts would be recycled into. All I'm saying is that they shouldn't have pushed for boosting investment in such a manner at that time. It would have been far better to, instead, say, cut payroll taxes, which helps businesses as well as workers (but this clearly doesn't fit into the Bush ideology so it would have been hard to convince his supporters I guess.)
To sum up, the tax cuts significantly weakened the government's fiscal position-- this is without even considering the bogus war in Iraq--and ended up creating a destabilizing boom. The story doesn't end here.
What I'm about to say next has little to do with the Bush administration; but George Bush will end up getting blamed for it anyway.
The real estate boom, arising from bad macroeconomic strategy, along with questionable central bank policy (I have an opinion piece on Greenspan coming soon ;) ,) ended up doing far more damage than anyone would have imagined. If it was simply the matter of tax cuts being reinvested into real estate, the story would be bad, but manageable. Instead, it seems that the American and European banks ended up getting entangled in the real estate boom in America. The collapse of the boom is not just hurting the real estate players--homebuilders, mortgage lenders, real estate focused banks, mortgage buyers, building material suppliers, etc--but is also hurting banks and other financial institutions who never intended to be big real estate players. For instance, we have insurance companies on the verge of insolvency because of exposure to real estate. Part of this is due to weak regulation from the Bush administration (particularly the SEC) but mostly it is the greed of shareholders and executives. The real estate bust triggered a bust in credit--something that was bound to happen at some point. The credit bust has almost brought down the whole banking system in America and Europe. Bush is not at fault for this but he is going to get blamed because it happened when he was in power.
Finally, it will be difficult, outside diehard Bush supporters, to claim that the economy actually did well during his two terms. The book cover that was shown at the top seems to claim of Bush's success as far back as 2003. Even though some numbers were supportive of Bush's economy, it looks like it was all a fiction. All that economic growth during Bush's term seems to have been due to a fictitious economy.
I remember reading once how the roaring 20's, which was a huge boom, was fake and didn't really understand what that meant...until now. I am in no way implying that the current situation is anything like the Great Depression--it is nowhere near as bad--but talk about a so-called boom--yes, 2003 to 2007 was considered a boom--turning out to be totally bogus. In hindsight, it is clear that what was seen as a boom was simply living on borrowed money. This isn't really a Bush issue since the growth in debt started 20 years ago. But Bush is going to be blamed for it.
The MBA President
George Bush is often called an MBA president. Perhaps it is fitting that George Bush ends up presiding over the time period when a massive credit bust occurs--one that some blame on the MBAs running the banking system and the investment world. Similar to Nixon, I think even die-hard conservatives will give up on Bush in 10 to 15 years. He will be known as the president who presided over the biggest single-year stock market crash in history, and the start of the 'long slump.' Unfortunately those aren't his fault. He will also be remembered as the one starting a bogus war, while still unable to bring Usama bin Laden and his gang to face a court of law. That, unfortunately for Bush, is his fault.
Tags: econopolitics, opinion