US Economy, Bush vs Obama (Part 2 of 2)

In part one [US Economy, Bush vs Obama (Part 1 of 2)] of my analysis of the USA's economy under George W Bush and Barrack Obama, I discussed the Global Financial Crises and how none of the economic numbers of either President can be taken straight "as is" without considering that terrible economic crash. Through a mix of government action and inaction that added up over the years (a mix of forcing banks into making bad loans while at the same time de-regulating strict codes of conduct for bank finances), the economic system of the US spiraled and collapsed beginning in 2007, triggered in part by a crash of the overly inflated housing market (caused by bad sub-prime bank loans).


Economy Under George W Bush

George W Bush, the 43rd President of the United States, a Republican, entered office in January 2001 and was replaced by Barrack Obama of the Democrats in January 2009. George W Bush became President under a flagging economy, one that had been quite strong under Bill Clinton for most of his run, but that had taken a serious hit from the "dot com" bubble and crash. There were fears of recession on the near horizon as economic numbers were almost all going in the wrong direction. Making matters even worse was the September 11 terrorist attack on the United States that caused a very serious hit to the economy as world confidence in the USA's security took a major beating. Note that despite the fact that President Bill Clinton (a Democrat) was the last President to have non-defecit national budget (the government was actually taking in more money than it was spending!), many signs of a bad economy (and what was coming to fruition by 2007) were already well under way. The biggest indicators of bad things to come were that the debt of Americans was increasing substantially while the savings were evaporating, even before Bush became President. That trend continued to escalate right through until the financial collapse epitomized by the crash in the stock market in late September 2008.

In 2001, when Bush became President, the US economy was in recession (beginning in 2000) with a GDP (Gross Domestic Product) growth rate of 0.3%. Investments were way down, the GDP (Gross Domestic Product) was wavering up and down right around a 0% increase, and unemployment was going up. George W Bush became leader of the US in the midst of a flagging economy (of course, "flagging" is much better than outright collapsing, like Obama faced).

Now for some specific numbers. Remember that Bush was President for fully 8 years, while Obama has been president for only just under 4.

Annual GDP Growth: 2.5% average over 8 years

Job Growth: Bush had job growth 52 months (4.3 years) in a row until the economic collapse.

Unemployment Rate: Bush had a larger total labour force to work with than Obama and had an amazingly low unemployment rate of 5.3% average over 8 years. The Unemployment rate at it's best was 4.4% in March 2007 and before the economic collapse was at its worst in June 2003 at 6.6%.

Federal Debt: George W Bush accumulated one of the largest national debts in US history, largely thanks to the 2 wars in Afghanistan and Iraq followed by the huge economic stimulus package and bailouts at the end of his Presidency. Under Bush's administration, the national debt doubled in 8 years (from before his first budget to his last budget). At the time, such a massive rise in government costs over 8 years was shocking. 5 trillion in 8 years!

Income Inequality: Under George W Bush's economic policies, he was lambasted for the fact that the richest 1% of the US population were getting much richer during the economic boom (good times) than the average American citizen, getting 65% of all growth in earnings compared to the rest of the population.

Poverty: Before the recession began in December 2007, the percentage of US citizens at or below the poverty line was at 12.5% of the population.


Economy Under Obama

Job Growth: Obama has had 12 months straight of job growth (1 year), from August 2011 to August 2012.

Annual GDP Growth: 1.5% 2012 so far, as of August. A 2% growth rate or above shows good economic growth. A rate below 2% indicates a bad economy. Economists say that for the Unemployment rate to drop much, the GDP will need to increase to 3% or higher over the next few years.

Unemployment: Currently as of August 2012, 8.1% Unemployment, but with the lowest total labour force (# of workers) in 30+ years. The huge drop in labour participation accounts for most of the apparent drop in the Unemployment rate under Obama (10.4% Unemployment at its worst). If Obama had the same labour force levels as Bush had at their worst, the US unemployment rate would currently stand at 11.2%. It is also notable that the vast majority of the jobs that were lost since the recession were full time jobs whereas most of the jobs added under Obama have been part time jobs, not full time jobs. A part time job, though, is obviously better than no job.

Income Inequality: If George W Bush was attacked for the growing disparity between the rich and the poor, Obama has REALLY screwed it up. The richest 1% in America have accounted for 93% of all earnings and wage increases in the past 4 years under Obama. The rich are getting far richer in the last 4 Obama years than they did under 6 years during Bush's economic boom, and the middle class has been shrinking and bleeding money while the poor are even worse off. What's especially shocking is that this is the exact sort of thing Obama promised he was going to do away with, the rich getting richer while everyone else was getting poorer. Instead, it's gotten much worse as more of the wealth has transferred up to the rich and away from the lower and middle classes. Huffington Post (April 11, 2012): Income Inequality Worse Under Obama Than George W Bush.

As the Huffington Post says:

That means the rising tide has lifted fewer boats during the Obama years -- and the ones it's lifted have been mostly yachts.

Poverty: A record number of people in the US now live below the poverty line, which accounts for 15.7% of the population. USA Today (July 22, 2012): USA Poverty On Track to Rise Highest Since 1960s. The Economic Collapse (November 12, 2011): Extreme Poverty Now At Record Levels.

Federal Debt:  In just under 4 years of government, Obama's government has spent about as much as Bush's government did in 8 years plus two wars.   ABC News (March 12, 2012): National Debt Has Increased More Under Obama Than Bush.

The Debt rose $4.899 trillion during the two terms of the Bush presidency. It has now gone up $4.939 trillion since President Obama took office.

If Mr. Obama wins re-election, and his budget projections prove accurate, the National Debt will top $20 trillion in 2016, the final year of his second term. That would mean the Debt increased by 87 percent, or $9.34 trillion, during his two terms.

Unlike Bush's $5 trillion in 8 years. Obama's got $5 trillion in just under 3 years. National debt is an important factor when considering an economy because federal debt has a direct impact on all financial investments, international trade, and overall consumer economic confidence. You'll find that usually when an open government has a surplus or a neutral (even) yearly budget, their economies tend to grow.


Conclusions

Who's economy was better? Clearly George W Bush's, and that's despite coming into power during an economic recession, which his government quickly turned around. Of course, it could also be argued that a substantial portion of the "boom" (or growth) in Bush's years as President was based upon a massive economic bubble (unsustainable fast growth that was based upon a fairy tale instead of solid math), which then popped and crashed in the last 2 years of his presidency. Which then left Obama becoming President amidst one of the worst economies in US history, comparable to the crash in The Great Depression.

The big news, however, should be where the economy goes from here, and how well has Obama's administration managed to turn the economic ship of the United States around (like Bush did for the recession in 2001 when he became President).

Unfortunately, none of those numbers are all that good for Obama. It has been by far the slowest recovery from any recession on record, even when compared against The Great Depression. In fact, it has been so slow and lackluster, that there is still a lot of talk about whether or not the US economy is even IN a recovery at all. Forbse (August 1, 2012): Obama Wins Gold For Worst Recovery Ever. If the US economy crashes again (which tragically, it very well might within the next year no matter who becomes the next US President), then historians may end up grouping this "mild recovery" in with the greater whole of a decade long depression like what happened with The Great Depression of the 1930s.

The current signs of a high unemployment rate, a record low in labour force participation, record highs in government spending, record highs in poverty, food stamp and welfare usage, and a small growth in annual GDP make the "recovery" very weak, especially as the disparity between wages for the rich and the poor continues to widen. That means that most Americans are seeing little or no difference now compared to when Obama first became President.

At the very least, it'll be interesting to look back on this 10 or 20 years in the future and see how history and time has changed (or not changed) the perception of President Obama's economy compared to President Bush's.

US Economy, Bush vs Obama (Part 1 of 2)

Who's economy was/is better? Was it the economy of President George W Bush (January 2001-January 2009) or President Barrack Obama (January 2009 to Present [September 2012])?...


The Global Economic Collapse

The financial collapse that happened right before the election of President Obama in 2008 was cataclysmic. The world economy literally imploded in tandem with the USA's economy. This needs to be considered when analyzing the economies of both US presidents (Bush and Obama), because it had (and still has) huge ramifications.

For most of George W Bush's eight year run as America's 43rd President, the economy was actually quite good (even too good), but it ended with one of the biggest (if not THE biggest) financial and economic collapses in modern history. This was in large part thanks to what is often described as an economic bubble of unrealistic prosperity and "boom" (jobs, business expansion, heavy investment, easy money through loans, etc.). The economy was on fire but burning much hotter than it probably should have. And when that economy started to contract, the gigantic holes that had formed in the global economy shredded into a million pieces.

At the beginning of 2007, Bush's 7th year as President, warning signs were starting to go off and the word "Recession" was starting to get batted around. An Economic Recession is when the economy is shrinking and/or stagnating for many months in a row instead of growing. That means employment, investment, manufacturing, bank loans and lots of other things dry up or drop. Though employment was amazingly good right through until the actual collapse, other signs like disappearing manufacturing jobs, a shrinking overall work force, rising debt loads (both in governments and households), and a weakening GDP (national Gross Domestic Production) hinted at potential disaster to come.

The economic Armageddon struck in September and October 2008, causing the greatest financial collapse in US and world markets since The Great Depression of the 1930s. A month later Obama was elected as the 44th President of the United States and took office January 2009 amidst the bottoming out of the US and global economies, which continued for a number of months beyond.

The Global Financial Crises from 2007 to 2012 (on going) has huge ripples that continue to be heavily felt all across the world, especially in the United States which was one of the hardest nations hit.


Important Considerations

It is essential to always keep in mind that George W Bush was President for 8 years during an economic boom whereas Barrack Obama has been President of the US for only 4 years in the midst of the Global Financial Crises. The importance of these two very different time periods cannot be overstated!


Who Caused The Collapse?

There are many fingers to point and almost as many people to point them at if someone wants to play the "blame game".

Generally, it was the banks and investment groups that were the heart and soul of the financial collapse. They created and rode a housing bubble based on horribly shaky investments and terrible reasoning. The whole idea was that the easier it was for everyone to get loans so they could buy houses and live large, the better the economy would be, and it was a win-win for everyone. So banks were handing out huge loans to absolutely EVERYONE who came asking, even advertising and "spreading the word" that ANYONE could get an easy low-rate mortgage for a new house and more with NO down-payment. These "great deals" were flying off the shelves as people snatched them up and dug themselves gigantic debt, many of which had little or no ability to pay the debts back. I mean, there were banks handing out house mortgages to the chronically unemployed! Of COURSE they couldn't pay it back!

Unfortunately it was hard to see just how bad it was getting because of how the banks were trading all these bad (sub-prime) mortgages and investments back and forth between each other to make even more money off of them. The banks and investors basically masked the depth and size of the problem through fancy accounting tricks. But when the booming economy started to contract and slow down, the off the wall projections of big growth evaporated and reality struck hard. As jobs started to bleed away and as it came time to pay up the monthly bills which included all these easy sub-prime loans, people simply could not pay.

"No problem!" thought the banks. They had thought this through beforehand. It's partly why they gave out the loans in the first place! Just kick the loafers out and sell the house and property. We'll make the loan back and more because housing and land prices are always going up anyway. True for the most part, until there's millions upon millions of houses and businesses up for sale at rock bottom "sell it right away" prices... And what happens when millions and millions of home owners aren't paying their mortgage bills for extended periods of time? The banks foreclose and take back all those houses... And ALL those houses go up for sale at the same time because all those bad loans were made right around the same time... Greedy banks, say hello to a bad case of supply and demand.

Sale prices tanked because the market was over saturated. There were WAY too many houses suddenly up for sale and no where near enough people to buy them. So the housing market completely imploded with the value of land and new houses dropping as much as 50% or more in many places. This means that the banks were overloaded with houses and businesses that they had paid out big money for, but that couldn't possibly return their investment. If they'd handed out a $300,000 loan for a house, the house was now worth half that! Where did all the money disappear to? It never really existed in the first place! It was "invisible" money based on severely overly valued debt (all over the place, but especially the housing market).

The easy answer to who caused the collapse is that the banks and investors (the Wall Street types) caused it. They dramatically over-invested, envisioning big things in a dream world that did not exist. They created an economic bubble (an empty air-filled dream) and it popped.


How Did The Banks Not Get Caught!?

How did they get away with it!? Now THAT is the root of the problem. Liberals (Democrats) will tell you that it was George Bush's fault for allowing it to get so out of hand in the first place. He was President. His advisers should have seen it coming and he should have stopped it before it ever got so bad. Unfortunately, a lot of people were quite blinded by the booming economy, and banking tricks hid the "empty" massive debt load very well. You'll note, however, that countries that DID NOT join in the "free easy money" lending spree by and large survived the economic collapse amazingly well (Canada, for example). Basically, it all came down to regulation. Governments that clamped down on what banks and financial institutions could do when it came to debt and lending fared well while the countries that didn't better regulate the banks fared badly.

So it's the government's fault!... Partly, yes. It's the banks (and investors) faults for doing all this when they really should have known better, but it's "the system's" fault (the government and the lack of financial smarts by every day people) that allowed them to get away with it in the first place. Then it WAS George Bush's fault!... Partly, but not entirely.

For the United States, where the bulk of all this originated, BOTH government parties are to blame! The Republicans are big on capitalism run wild to be free and do what it likes (de-regulation and all that). "The free market will keep things in check." It obviously didn't. Democrats were to blame because they were big on the "everyone needs a house and access to easy money" push. They had it in their heads that debt money is almost always better than no money, so they pushed for banks to lend, lend, lend! The Democrats were in control of Congress as of January 2007 and went on a huge spending spree as well as de-regulated what little restrictions there were on bank loans and trading so that poor people could own a nice home too. BOTH parties screwed up big time!


Yes, The Democrats Too!

Am I being unfair to the Democrats? After all, Bush was a Republican President! Didn't he and the Republicans have all the power to enact legislation to stop the banks from doing this?

The US government is set up with two major legislative branches, an executive branch, and the judicial branch. The Legislative Branch (Congress) consists of The House of Representatives and The Senate. The Executive Branch is made up of the "ruling party", the political party that won the last federal election and have their President in power. This means that the Republicans ran the Executive Branch of the US government during Bush's 2 terms. Congress, however, is made up of DIFFERENT elected officials, and it has the power to veto (over-ride) the Executive Branch if it can get a 2/3rds majority vote on a bill (law, government expenses, etc.). This is exactly what happened at the end of 2006. The Democrats gained a big majority in Congress and because of this, they heavily controlled what the overall government could do with regards to federal money and the economy. So it's no lie that both political parties were heavily involved in the financial collapse one way or another. The entire US government is set up in such a way that it's quite hard for either the Executive Branch or the Legislative Branch to do much without the approval of the other.

To make matters worse, a lot of people didn't see this coming until it was too late. As I already said. The banks were doing an impressive job at masking just how big the problem was, so even as it was burning them alive, a lot of people still had no idea just how bad it was until it all finally came crashing down.


Coming Soon...

US Economy? Bush vs Obama?  (Part 2)   (link not yet available)

Now that we've covered The Global Financial Crises of 2007-2012, next we'll look into the actual numbers of both Presidents' economies and see how they compare.