Recession, like menopause, is a retrospective diagnosis. You don’t know you’re in one until you’ve been in it for at least two quarters (referring to a recession) or a year (for menopause). The question for me is not: Are we hitting a recession in 2008? It is: What has made the economy so buoyant that we didn’t submerge into a recession several years ago?
Wall Street giant and billion-dollar bank Merrill Lynch announced this week that the United States had entered a recession for the first time in 16 years. It was a controversial call denied by a chorus of economists who do not think we’re there yet. But the announcement comes from the bank’s chief American economist, David Rosenberg — widely respected on Wall Street.
The largest factor driving this country’s economy into recession has been the Bush administration’s profligate spending. Please read the following quote from the conservative/libertarian think tank Cato Institute’s Web site:
“George Bush is mired in a fiscal policy crisis worse than anyone could have envisioned when he entered the Oval Office … This crisis is the resurgence of record federal deficits … The deterioration of America’s fiscal health cannot be blamed on … pro-spending coalitions in the Democrat-controlled Congress — although certainly some of the blame lies there. It is almost exclusively the creation of the Bush administration itself.”
Sound familiar? The article, which I edited heavily (taking out references that would have dated it immediately, such as the use of the term “Reaganomics”), is about George H.W. Bush, not George W. But it might as well have been about the son.
Forget about the $127 billion surplus that President Bill Clinton left the nation after he moved out of the White House or the fact that Clinton paid down hundreds of billions of dollars in federal debt. President George W. Bush has produced nothing but deficits since he’s been in office. Last year’s, at $163 billion, was the lowest in five years. But it probably would not have been if his trillion-dollar war in Iraq hadn’t been paid for “off budget.” That little budgetary trick by the administration means that cost isn’t tallied in the deficit and debt figures.
Then, of course, there’s Bush’s multitrillion-dollar tax cut.
Here’s a lesson Bush never learned and one that probably could have kept this country out of recession: You can’t fight an expensive war AND cut taxes simultaneously without sending the U.S. economy into the tank.
That is just what Bush has done.
There are other contributing factors, of course. The housing bust has hurt this consumer-driven economy mightily. Americans felt richer and borrowed heavily against home equity at the height of the boom. These factors kept corporate profits and the economy growing.
But the bust that has now followed was highly predictable. Real estate always runs in cycles. The last real-estate boom lasted an incredibly long five years. The president should not have been piling up irresponsible debt, knowing the crash would come at some point.
Then there is oil. Prices have been high since Hurricane Katrina, more than two years ago. When you consider that early in Bush’s first term oil was selling for about $25 per barrel, and we’re now paying about four times that much, it’s incredible that fact alone didn’t drive us into recession territory much sooner.
What has kept our economy growing these past few years? My theory is: immigration. When millions of people flood into this country with few possessions, buy homes and fill them with consumer goods, of course our consumer economy is pumped. But that artificial pump-up won’t last forever. Unfortunately, the overdevelopment they prompt and the environmental degradation they create will.
What’s the solution? It won’t be resolved with this guy in the White House. Cut defense spending. Use a pay-go system for all future domestic spending programs and tax cuts. Get the deficit down and bring the surplus back. And while we’re at it, pay down the national debt.
(Bonnie Erbe is a TV host and columniost. E-mail bonnieerbe(at)CompuServe.com.)