The Pernicious 'No Real Economic Progress' Myth

The conventional wisdom (CW) is that under President Bush:

  • The country's economy has grown very little and incomes have never gotten back to where they were before the recession.

  • The rich have been getting richer, especially because of the Bush tax cuts, while the poor and the middle class have been getting ever fewer crumbs.

While its performance hasn't been as good as it could have been, the Bush economy has acquitted itself well enough that the CW should be discarded.

Let's start with the overall economy.

Based on quarterly economic growth data from the government's Bureau of Economic Analysis (BEA), the economy is almost 19% bigger now than it was at the beginning of the fourth quarter of 2001, the first quarter that the new president's first budget was in effect (three of the five quarters prior to that had negative growth, first because of the bursting of the Internet bubble, and in the case of the third quarter of 2001, the September 11 terrorist attacks). Real growth during that time has averaged 2.56% -- not stellar, and not as good as the best of the Clinton years, but certainly not the awful performance the CW typically assumes.

Why hasn't it been better? I'm not alone in arguing that the post-Enron wave of burdensome regulation imposed by the Sarbanes-Oxley (Sox) law has held the economy back, both by imposing onerous compliance costs on publicly traded companies, and by largely shutting off the initial public offering market to all but the most stellar candidates. The next president and Congress are going to have to do something to reduce the excesses of Sox if we are ever to return to consistent growth of 4% or more.

Next, let's look at overall income growth:

realpercapitaincomechart0808.jpg

At the end of 2007, the average American was almost 8% better off than in 2002 ($26,078 divided by $24,176), the trough of the post-bubble, post-9/11 recession. Again, this is nothing to party hearty over. But keep in mind that BEA data excludes capital gains, the benefits of which tend to skew towards those with higher incomes; so the measurements listed above better reflect what "working people" are seeing than other available measurements.

Many of the same people who deride the Bush economy, especially its tax cuts, won't face up to three very important points illustrated in the chart above.

First, the Clinton economy didn't become anything special for the average person until 1997, the first year of Bill Clinton's second term. Why is that? It certainly wasn't because of the tax increases of 1993. It's clear from the chart that, if anything, they held back an economy that, given the technology improvements that were occurring at the time, should have been roaring after the early-1990s recession.