Bush's economic mistakes

Time magazine has published a list of what it believes to be mistakes made on the economy by George W. Bush during his time in office. While I agree that most of them have at least some merit there are two that bear closer scrutiny as they are in danger of becoming part of the conventional wisdom:

Number 3: Tax Cuts for the Rich

When Ronald Reagan slashed taxes on capital gains and high earners in the early 1980s, inflation was pushing the middle class into top tax brackets, financial markets had been stuck in a funk for 15 years and income inequality had been declining for almost five decades. Like him or not, the man's actions fit the times — and the U.S. economy boomed for most of his two terms in office. Bush came to Washington facing almost diametrically opposing economic conditions, yet he offered up the same solutions as Reagan. Guess what: they weren't what the economy needed.

I am always entertained by the notion that tax cuts harm the economy. How it hurts to have people retain more of their own money is something I can never figure out. The description provided by Time doesn't really make things any clearer. Let's take a look at how the economy performed after April 2003 when the Tax Relief & Reconciliation Act was passed. Unemployment underwent a steady decline from a peak of 6.3% in June of that year to a low of of 4.4% in March of 2007, about where it hovered for a year before starting to ratchet upwards in May of last year.

Now let's look at GDP growth during that time:

via http://www.data360.org

As you can see, real -- i.e. accounting for inflation -- GDP growth following the tax cut was typically in the 2-3% range, sometimes sharply higher or lower. After taking into account population growth that's nothing special but nothing to hang one's head over either.

Let's also concede that tax rates alone do not dictate economic growth, with other factors such as regulation and monetary policy also playing significant roles. It may be that the tax cuts didn't help at all -- though I doubt that -- but it seems pretty difficult to make the case that the cuts harmed the economy or should be regarded as a mistake. Indeed, when one considers the awful legislation that Congress was busy spending money on at the time letting people keep more of their paychecks and investments seems like a wise policy.

Number 6: Energy Policy

Not much to say here, except that there wasn't an energy policy. Again, this wasn't new to the Bush era. But with a years-long oil-price slide finally coming to an end not long before he took office, the President's (and Vice President's) unwillingness to take serious steps to reduce the country's dependence on fossil fuels left the country vulnerable and way behind the rest of the developed world in preparing for a post-oil future.

Oh, if only this were true. The reality is that under Bush the government continued to fiddle in the energy sector, most notably via the Energy Policy Act of 2005. Go take a look at the bill's general provisions, take a look at its tax breaks and then tell me that the government did nothing. Also notable is that in addition to active interventions that under Bush's watch the government also left in place prohibitions against drilling in ANWR, drilling offshore (although some action was taken to lift this in the administration's waning days) and CAFE standards. And remember, telling people what they can't do is just as important as telling people what they should do.

This notion being peddled by Time that the government took a hands-off approach is a complete fairy tale.