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The Bush Economy-The "Misunderestimated" President

 
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PostPosted: Sat Mar 13, 2010 10:05 pm    Post subject: The Bush Economy-The "Misunderestimated" President Reply with quote

I recall Bush was open to a stimulus plan after Lehman failed in Sep '08. Yet, nothing came out of the Pelosi House, and there's still nothing effective.

Some will continue to blame Bush for unexpected events (e.g. 9/11) and acts of God (e.g. hurricane Katrina).

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The "misunderestimated" president:

Bush inherited the worst stock market crash since the Great Depression and a recession. However, the Bush Administration turned the recession into one of the mildest in history (which wasn't a recession based on annual per capita real GDP), after the record economic expansion.

Over a five-year period in the mid-2000s, U.S. corporations had a record 20 consecutive quarters of double-digit earnings growth, two million houses a year were built, 16 million autos per year were sold, U.S. real GDP expanded 3% annually, in spite of 6% annual current account deficits (which subtract from GDP).

The U.S. economy was most efficient, while Americans stocked-up on real assets and goods, and capital was built-up. It was one of the greatest periods of U.S. prosperity, and in a structural bear market that began in 2000.

The Bush Administration was adept at minimizing the recession in 2008, including providing a tax cut in early '08 for the Fed to catch-up easing the money supply, until Lehman failed in Sep '08, which caused the economy to fall off a cliff. However, appropriate policy adjustments were implemented quickly.

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The U.S. created 17.6 million jobs between 1993-98, and created only 3.7 million jobs between 2001-06. However, U.S. real GDP growth was only slightly higher from 1993-98 than from 2001-06. So, the U.S. became much more productive in the 2000s, i.e. using fewer inputs to produce more output.

However, GDP only reflects the production side of the economy. When the consumption side is included, U.S. living standards rose at a steeper rate in the 2000s than the 1990s, which is remarkable, given the structural bear market began in 2000, after a spectacular 18-year bull market.

In the 2000s, there was disinflation, falling interest rates, lower taxes, and rising real compensation, along with full employment between recessions. The virtuous U.S. cycle of consumption and investment turned into a boom, which was unsustainable. Yet, the U.S. economy held up well, even through the biggest oil shock in history, in 2007-08.

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Anonymous said...

PeakTrader,

Do you trust government productivity figures? They are biased toward outsourcing.

Suppose a company has a product that takes a 1000 man hours to complete and it has a subassembly that requires 50 man hours to build. Now suppose the company outsources the subassembly to a foreign company that is going to take 75 man hours to build but their labor is so much cheaper that it is a good deal. The way the government productivity numbers score this the company is more productive by 50 man hours. That is they are now producing the same product with 950 man hours of labor where it took a 1000 in the past.

You have to be very careful with government numbers these days. Unemployment used to count so called “discouraged workers” that no longer count. Inflation number are even more suspect. They have decided that if the price of something go up they will quit counting it under the assumption that people will buy less of it. I go shopping with my wife every once and a while. The government inflation numbers are not to be trusted.

PeakTrader said...

Anon, you could also say productivity is biased in emerging industries, because they tend to be less productive or unproductive. That means they're using a lot of inputs for little or no output. The U.S. leads the world in emerging industries. Does that also mean you can't trust government data?

If you went shopping with your wife, over the past five years or so, then you'd know there've been more bargains than ever before, in part, because of diminishing marginal utility.

Also, here's what the BLS says about productivity and offshoring:

The Effect of Outsourcing and Offshoring on BLS Productivity Measures
March 26, 2004

If the outsourcing is from manufacturing to businesses located abroad (“offshoring”), business sector output is lowered by the amount of value-added that is no longer produced in the U.S.

In the case of offshoring, both business sector output and hours will fall. Again, the net effect on business sector labor productivity depends on the relative productivity of the lost output to the remaining output and any new output created. It is reasonable, however, to suppose that in this type of situation lost production may have taken place in plants with relatively low levels of productivity. If so, then offshoring might raise labor productivity, but as with domestic outsourcing the effect of this compositional effect is expected to be modest.

bobble said...

i understand that we get cheap steel. do you understand that, added to the price of those cheap products, is massive U.S. unemployment?

PeakTrader said...

Bobble, would you complain if you got free steel?, and complain you're not working to produce steel that's free?

bobble said...

PT:but, its not free. if it was, there would be no problem. we could all quit our jobs and live on the free stuff from china.

unfortunately, we all still need to earn a living, and for an increasing percentage of americans, that's not possible.

economists, when writing about how free trade benefits countries, always add, as an afterthought, that it doesn't benefit everyone equally. there will be winners and losers. then they mumble something about the need to compensate the losers in the free trade bargain. then everybody forgets all about that aspect.

PeakTrader said...

So, because steel is free, you don't have a job.

Article:

Unlimited wants and needs are one half of the fundamental problem of scarcity that has plagued humanity since the beginning of time. The other half of the scarcity problem is limited resources.

People always want and need more than they have...The pursuit of satisfaction, the act of satisfying wants and needs...it motivates people to take action...a vast number of alternative needs remain unsatisfied.
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