The 2008 US Election and the Economy

Abstract

Economic issues took centre stage during the 2008 presidential campaign. The deterioration ofthe economy and the deepening financial crisis pushed voters' concerns for their jobs and personal finances to the forefront ofthe election campaign. Barack Obama benefited from the economic downturn to win the White House by criticizing George W. Bush's record and economic policies, by emphasizing the need for a decisive plan to kick- start the economy, and by adopting a moderate and confident attitude in these difficult times. To understand why the economy was so central to this campaign, we have to answer the following questions. How can we assess the Bush administration's economic record? Was it as bad as the voters' reaction seems to indicate? And what is Obama's plan for the economy? Will he be able to turn things around?THE BUSH ADMINISTRATION'S ECONOMIC RECORDOn 20 January 2001, George W. Bush was sworn in as the 43rd president of the United States of America. According to the National Bureau of Economic Research, the country slipped into a recession just a few weeks later, in March. Responsibility for that economic downturn cannot be attributed to the then-incoming administration, however, since the underpinnings of a recession were in place before the November 2000 election. The burst of the high-tech bubble that started during the winter of 2000, the overinvestment linked to that bubble, rising energy prices in the summer of 2000, rising key interest rates, and a 10-year economic run that had just run out of steam all contributed to the 2001 recession.The government's response to this contraction in the economy was delivered through an initial salvo: tax cuts (an election campaign promise) along with retroactive tax rebate cheques that were sent to taxpayers (a compromise granted to Democrats who wished to maximize this short-term economic stimulus).The economy suffered another setback with the terrorist attacks of 11 September 2001, but the recession was over by the end of November. The recovery was slow and a steady stream of job losses occurred until 2003. Financial scandals involving Enron, Worldcom, and others; the wars in Afghanistan and Iraq; and the many terrorist warnings (the infamous orange alerts) undermined the confidence of consumers and investors alike over an extended period. To provide stronger support for the rebound, congress and the White House agreed to another tax cut in 2003. Much like the plan hammered out in 2001, these tax cuts were tailored to sunset in 10 years' time.The remainder of the Bush years saw China rise as an economic powerhouse, the US dollar drop, the real estate market's impressive growth (and meltdown), and hurricane-related shocks in 2005. Bush also had to make several changes to his team of economic experts, with three men holding the position of secretary of the treasury during his two terms as president: Paul O' Neil was appointed in 2001, John Snow in 2003, and Henry Paulson in 2006. Bush inherited Alan Greenspan, who had been president of the Federal Reserve since the end of Ronald Reagan's presidency. Greenspan's mandate was renewed once; he subsequently stepped down to be replaced by Ben Bernanke.Shifts in economic indicatorsBush's first term began in the first quarter of 2001. What exactly transpired during the 31 quarters between then and the third quarter of 2008? Can any comparison with previous presidencies end up with a thumb's up to the current Republican administration?Real GDP has seen average annual growth of 2.3 percent since the start of 2001. This advance is somewhat weaker than the 3.3 percent average recorded since 1953. In fact, this is the weakest performance if we exclude the real GDP performance under George Bush Sr., who was president from 1989 to 1993. It is also 1.4 percentage points below the average annual gain in GDP during Bill Clinton's presidency. George W. Bush's presidency also turned in a below-average performance in terms of most of the main economic indicators, in real terms or volumes, namely consumer spending, non-residential business investment, housing starts, and industrial production. …