03 July 2008

Bush's Economic Legacy

The Bush Legacy In The Stock Market

On Wednesday, the Dow Jones industrial average and the Nasdaq composite index closed more than 20 percent below the peaks they reached in October. The S&P 500 is close to a 20 percent decline, the threshold of a bear market.

From here.

The Dow's close yesterday was 11,215.51.

The Dow when Bush took office (January 20, 2001) was 10,732.

The absolute increase in the Dow since Bush took office is 4.5%. The annualized increase in the Dow since Bush took office has been 0.5859%, which is about three-quarters of the going rate of passbook savings accounts at my local bank. Capital gains tax cuts don't matter very much when stock market prices aren't rising.

Despite the flat market, the nation's wealth has surged into the financial industry, causing the incomes of financial industry executives to dwarf those of executives in the real economy, and driving economic inequality with income and wealth concentrated in the rich at levels we haven't seen since the 1920s just before the Great Depression.

The Dow is the most politically important market indicator, even if it is not necessarily the broadest or most representative indicator.

Bush's Legacy Of Oil Prices

Oil prices yesterday crossed the $145 a barrel mark, another record high in both nominal and inflation adjusted terms. In January 2001, when President Bush took office, oil was $28.66 a barrel, less than a fifth of the current price.

Bush's Legacy For Manufacturing Jobs

When President Bush took office there were 12,236,000 production workers employed in the manufacturing indusry in the United States (on a seasonally adjusted basis). In June 2008, there were 9,761,000. Employment in the manufacturing sector has shrunk by 20.2% during the Bush Administration.

Bush's Legacy For The National Debt

The federal government's total debt is currently about $9.47 trillion, of which $5.70 trillion is held by the public, $2.29 trillion is held by the Social Security trust fund (from FICA taxes), and the $3.77 trillion balance is held by other government trust funds such as the Medicare trust fund (from FICA taxes) and highway maintenance trust fund (from gas taxes).

When Bush took office the federal government's total debt was about $5.63 trillion, of which $3.41 trillion was held by the public.

The portion of the national debt held by the public has increased by $2.29 trillion during the Bush Administration, which is about $7,633 per man, woman and child in the United States. About 40% of the federal debt has been accumulated during the Bush Administration.


Civil Sense said...

In the Dow index, the Delay, Don't Drill, Do-nothing Democrats have helped push the numbers down. Obviously, external factors in the price of oil (such as surging demand from India and China) is crimping world oil supplies. All of these things hurt the Dow, even though unemployment is still rather historically low.

There also is an interesting correlation between the Obama Intrade Pricing and the Dow Index graphs. Since January 1, when Obama's Intrade price increases, the Dow Index decreases.

It will be interesting to see where the floor of the financial markets will lie if Obama is elected. In any event, the outlook is bleak for the markets in the near future.

Andrew Oh-Willeke said...

The market was completely flat from January 20, 2001 to June 2006. The subsequent rally occured after it was known that Obama was running for President.

But, simply put, Bush economic policy is responsible for many of these outcomes. He submitted tax cuts despite increasing spending producing deficit budgets. He pushed a war in Iraq on false information that has been a key factor in driving up oil prices and increasing the national debt. He has failed to even acknowledge that a decline in the manufacturing industry is a problem that should be addressed. His economic policies have pretty much been adopted over the last seven years.

It seems pretty clear that new economic policies are in order if the past seven years of malaise are to be corrected.

Dave Barnes said...


Next, you will probably be whining about the lost of family farms.
Get over the decline in manufacturing jobs.


Andrew Oh-Willeke said...


The implicit argument you are making, I assume, is that a lot of the decline in manufacturing jobs is due either to (1) increased productivity, or (2) due to imports that "should" happen in some Platonic ideal of an economically fair world due to real world circumstances like relative energy costs, transportation costs and the proximity of raw materials to factories.

To really get to the bottom of things, at a deep level, one must be able to quantify productivity effects v. outsourcing effects v. changes in domestic consumption, and to get a better handle on what drives outsourcing. I've given some thought to how to illustrate this in a way that isn't statistical gobbledegook and have a few ideas.

One is to look at what part of the manufacturing workforce in economic reality works for the rest of the world and what part of the rest of the world's manufacturing workforce really works for us, in the context of the total domestic and world manufacturing workforces.

Another is to take a somewhat more abstract "value of production" approach along the same lines.

A third is to look at combined domestic source and foreign source manufacturing consumption, then and now, modified to factor out the impact of domestic productivity growth with government productivity numbers (which are meaningful in the short term even though lots of noise gets into the signal in the long term as comparability of outputs muddies the waters).

The bottom line is that while some decline in manufacturing jobs may have a legitimate basis in economic fundamentals, there is also "inappropriate" government action (e.g. tax policies that favor imports over domestic production, and automatic production over production by workers) that result in manufacturing job cuts that otherwise don't make economic sense, and policy failures as a result of not taking action (e.g. not nuturing critical skills) that have hampered the manufacturing sector.

I've been outlining a post or two in my head to spell out these ideas.

Regardless, the simple truth is that job creation, even on a net basis, and particularly when adjusted for differences in pay between jobs lost and jobs created, has not been stellar in the period from January 20, 2001 and the present.

Also, given the rate and magnitude of the decline in manufacturing jobs, compared to prior administrations, it is fair to ask if the Bush Administration has had a policy that has differed from past administrations in a way that has contributed to this decline.

Obviously, there are a host of economic indicators and I didn't have time to post them all (yet!).