Economic Policy in the Rear-View Mirror - Grading the Bush Terms

It’s that time again.  The term has ended and grades are due.  The arrival of the Obama Administration is a natural moment to look back and assess the economic policy legacy of the Bush Administration, especially with an eye toward learning from mistakes of the past.  At least in my mind, policy errors take two inseparable forms – substance and process.  Without quality policy content, the path the implementation becomes irrelevant.  And event the best of ideas can die a lonely death on the rocky shoals of Congress and the federal agencies.  With that in mind, consider the five most significant missteps of the Bush era. 1. The Vision Thing. There is a tragic paradox in this.  It is widely-accepted that the George W. Bush administration was driven by an effort to avoid the mistakes of his father’s administration. True enough, but weirdly that very reactive stance turns out to be the central theme of the policy decisions.  The Bush administration never managed articulate a vision of how a government can harness the incredible power of free people engaged in efficient, fair markets to generate broad-based prosperity and a social justice.  Instead, they left the public with the impression of an ideological adherence to markets. A principled conservatism that believes in a small, contained government, but is not opposed to government’s genuine role in providing the framework for market competition, is alert in its supervision of competition, and flexible and innovative in providing widely-accepted government support remains an appealing vision.  It just needs to be presented to the American people. It is “markets on behalf of people” and not “markets for markets sake” or, even worse, “markets for ideology’s sake.”  Too many Americans believe in the aftermath of the Bush era that Republicans do not have a way to help the middle class, and may believe that they do not even care. 2. Spending, spending, spending. When I was CBO Director I used to say that you could not speak too poorly or too often about the apocalyptic state of the federal governments finances.  That was math.  But exacerbating the problems is at odds with any sensible policy – conservative or otherwise – and still it happened.  What the Bush folks seemingly did not appreciate is the old aphorism that “budget is policy.” Partly this seems to reflect the lack of vision – the battle is about the size and scope of government – and spending is a key front in this struggle.  Partly it reflects retail constituent politics that used to be the Democrats mode of operation: a bloated farm bill to buy House Republicans, a titanic Medicare drug bill expansion to buy seniors, and so one.  And partly if reflects and unwillingness to make a stand: no vetoes of spending bills, no willingness to institute budget controls, and no success at entitlement reform. 3. Tax cuts but not tax policy The 2001 and 2003 tax bills are the signature economic policy moments of the Bush Administration and there is much to be learned from them.  The 2001 cut fulfilled a campaign promise, lowered marginal tax rates, and was passed at the right time to help soften the recession, but that is about all one can say for it.  As a matter of moving the U.S. toward a tax code that is pro-growth and pro-competitive, it left a lot to be desired.  It was littered with rebate checks, a give-away with the new 10 percent tax bracket, and a hodge-podge gimmicky phase-ins and sunsets. The 2003 tax bill was arguably not needed – the economy was recovering anyway – but contained lots of good tax policy.  It reduced the distortionary double-taxation of corporate-source income, had genuine pro-growth investment incentives, and cemented immediately these improvements.  If the Administration had invested the effort in 2001 to pass a bill that was like 2003, it could have been on track to end up with the kind tax code proposed by the ill-fated President’s Advisory Commission on Tax Reform.  Instead, the overriding approach was that any tax cut would do, and tax cuts were driven by political and economic imperatives – not a vision for a better tax code. 4. Missing in Action On Health Care For the past 30 years, spending per person on health care has grown faster than income per person by roughly 2 percentage points per year.  Stunning.  This growth is at the root of the coming Medicare explosion, the pressures on businesses to drop and reduce coverage, and the expansion of health care to fully one-sixth of the economy.  There can’t be a bigger economic policy issue than health care.  And, as a political matter, at the end of the Bush terms people believe that Republicans don’t want everyone to have insurance.  And they cannot believe that quality health care is something that competitive markets can deliver.  If people believe you are on the wrong side of the most important domestic policy issue and that markets are the wrong approach to a huge part of the economy, you have a problem. Higher quality health care, at lower cost, for every American should be a central plank of Republicans.  It is within the grasp of reformed markets to deliver. It is something that the public wants.  Instead, leadership has been ceded to the Democrats who are planning a large move in the wrong direction – bigger government, less choice and flexibility, and no solution for rising costs.  It did not have to be that way. 5. Lost bi-partisanship In 2010, the triple-witching hour of economic policy arrives: the baby-boomers reach normal retirement age, the tax cuts sunset, and the Social Security surplus begins to shrink.  The years 2000 to 2008 were the chance to get ahead of the curve – to fix a broken tax code, reform health care, put Social Security on track, and get the size of government under control. Big reforms of this type are necessarily bi-partisan in nature.  The Bush strategy of pursuing bills that could be passed by “a majority of the majority” guaranteed that these would be off the table and the stakes would be much smaller.  That is bad enough, but the one-party strategy did something worse.  It engendered a style of operation in which budgetary favors were handed out to solidify Republican support, and the party suffered corruption and lost its way. In sum, a different approach that articulated a clearer vision and fought pro-actively for the big reforms to make it real and lasting would have required a bi-partisan approach.  It would have not let spending get out of control and corrupt the party.  And it would have gotten ahead of the tax and entitlement issues that loom so large.