The Inherited Bad Economy Myth- Debunked

I took the time to listen to a couple of political talk shows on Sunday morning. My son watched with me and kept asking me why President Bush took the economy down. He assumed that this actually happened because President Obama said that he inherited an economy that was in decline. So, as I remember the situation differently than the Democratic pundits, I thought I would do some research.

The Democrats took control of Congress in January, 2007. As you know, Congress, specifically the House of Representatives, controls the budget. Even though George Bush was President, the 2006 elections produced a split of 233 Democrats and 202 Republicans. [{Before the election, there were 203 Democrats and 229 Republicans with 3 vacancies.] In the Senate, there were 49 Democrats and 49 Republicans with 2 independents, but based on the independents voting records, the Democratic share was 50.5% and the Republican was 49.5 %. Clearly in 2007, the Democrats were in control of the economy. So let’s look at the economy at the beginning of 2007 and compare it with the current economy to see how the Democrats have made the economy better:

                                                May 2007       December/2008          July, 2010

Unemployment (U-6)           8.3%                      12.5%                   16.8%

Dow Jones Stocks             @11700                @8200                @10200

GDP [chained dollars]       13,194.1            12,993.7               13,216.5

 National Debt % of GDP   63.9%                69.15%                 94.27%

                I used May 2007 because by that time the Democrats had solidified their committees and could start to implement their programs. In 2007, Representative Barney Frank and Senator Chris Dodd were giving speeches railing against more regulation of the financial markets. They blathered about the stability of the housing market, and the need for subprime financing in order to give more Americans (read potential Democratic voters within their traditional sources) the privilege of owning a home. I know that now they have appeared to have changed positions and now actually have the Financial Reform Act named after them, but more on that later.

                In 2009 President Obama took over so I included his numbers above.

                To explain the numbers represented above:      The U-6 unemployment rate is not the one that you hear on the news, which is the U-3. The difference is that U-6 includes everyone that is unemployed, not just those that file claims as the U-3 does. So if you have not found a job at the time that your unemployment compensation runs out, you are counted by the U-6 but not by the U-3. Therefore the real unemployment rate is the U-6,

                The GDP chained dollar accounts for GDP in indexed form which more accurately accounts for real purchasing power.

                To be fair, when George Bush took over in 2001, the National Debt percentage of GDP was 57.02% so during the 6 years that George Bush was President and the congress was controlled by Republicans, and considering the war effort, the percentage increased @6.9%. Since the Democrats took over, the percentage has increased by 30.3%. The chart clearly shows that the Democratic programs have not stimulated the economy.

                So did President Obama inherit a downward trending economy? Yes he did, but the causes of the trend were Democratic social programs coupled with the Democrats resistance to regulating the financial markets. What Obama should be saying to be honest is that he inherited an economy that his own party significantly caused.


2 Responses to The Inherited Bad Economy Myth- Debunked

  1. Ben Hoffman says:

    You’re a liar. Change doesn’t occur because of speeches made in Congress; they occur when legislation is passed. We can trace most of the problems to legislation passed by Republicans during the late 90s (and Clinton signed), as well as the massive tax cuts passed by Republicans in 2001 and 2003. There was also the total lack of oversight during the Bush administration, which was the same as more deregulation.

    • johnnmoore says:

      I allow almost any type of blog as long as it is well written and shows some intelligence or research. Whether yours accomplishes that is questionable, but does deserve a response. You are correct that Congress passes laws. You are also correct that speeches do not pass laws. Congress does pass laws after they go through committees. That is where Mr. Frank and Mr. Dodd come in – they either control or have significant impact on whether a law even goes before congress. Thus if a committee person has enough clout to stop a bill, Congress will not see it. Otherwise you have misunderstood the blog.
      First, a speech indicates either what the speaker really thinks – a state of mind. Otherwise the speaker is a liar. In the case of Mr. Frank, his speeches prior to 2008 indicated a strong reluctance to regulate. Consider his famous “Roll of the Dice” comment while he was the ranking Democrat on the Financial Services Committee where he said “”I do not want the same kind of focus on safety and soundness [in the regulation of Fannie Mae and Freddie Mac] that we have in the Office of the Comptroller of the Currency and the Office of Thrift Supervision. I want to roll the dice a little bit more in this situation towards subsidised housing” in response to an attempt by the Bush administration to increase regulation of Fannie and Freddie. You might also wish to check “The Fannie Mae Dice Roll Continues, The Wall Street Journal. 11 November 2009. Retrieved 13 December 2009.
      If you want to defend every democrat no matter what their position, then you should have argued that Mr. Frank has started to see the error of his ways, and in his position as Chairman of the Financial Services Committee, he has allowed legislation to go through which he believed would involve regulation and help end the current recession. While that legislation has failed to do so, it is a positive step in the correct direction.
      I can make the same comments about Senator Dodd. Luckily for them, both have changed their position and covered their reputations with the Frank-Dodd Financial Reform Bill.
      The statistics that I used are easily obtainable from the various U. S. Government sites.

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