Tuesday, January 27, 2009

Hold Them Accountable Part II: If Conservatives Caused the Economic Crisis, They Had a Lot of Help from Democrats!

Elections and Economic Performance: The Historical Connection
The poor state of the economy helped to secure President Obama's election victory. An abundance of historical research demonstrates that voters typically blame the incumbent or the incumbent party for bad economic conditions.

Prior to the implosion of Lehman Brothers, McCain led or was tied with Obama in many leading opinion polls. But after Lehman and a number of other financial institutions experienced economic meltdowns and after statistics demonstrated that the economy was in a state of sharp decline, the momentum shifted strongly in Obama's direction.

Exit polls reveal that a majority of voters chose Obama because they trusted him to bring about economic growth. Voter preferences follow historical patterns, including the recent past. Poor economic conditions caused many voters to abandon Carter and Bush I in their re-election bids.

Lil' Bush's Fault?
During the presidential campaign, many pundits and commentators blamed Bush for the economic downturn. They often identified "deregulation" as the main culprit. Specifically, many liberals cited the Gramm-Leach-Bliley Act of 1999, which repealed portions of the Glass-Steagall Act, a depression-era statute that regulated several aspects of the nation's banking industry. The Gramm-Leach-Bliley Act repealed a provision of Glass-Steagall that prohibited the consolidation of a commercial bank and an insurance company or investment bank.

Liberal critiques of Gramm-Leach-Bliley reached a fever pitch after several venerable investment banks imploded. Gramm-Leach-Bliley would soon symbolize to many liberals the utter bankruptcy of conservatism and the wisdom of liberalism.

Many liberals also blamed the economic crisis on Bush's tax cuts for high-income earners; others argued that the costly war in Iraq caused the problem. Also, during the Democratic primaries, progressives blamed NAFTA and other "free trade" agreements for the loss of jobs in the U.S., which they believe created the deep problems in the nation's "rust belt." Liberals argued that collectively, these failed "conservative" policies required a "change" of direction and that only liberal-Democratic measures could repair the terrible state of affairs.

If Liberals Are Correct on the Economy, They Must Criticize Democrats
Many economists dispute some of the more popular arguments that liberals advance as reasons for the sluggish economy. For example, according to economists, the Gramm-Leach-Bliley Act did not cause the financial crisis. Instead, the housing bubble and its subsequent explosion, the spread of risky mortgage-based assets through financial and securities markets, and the increase in interest rates from years of historically low levels created most of the nation's current economic problems (for an extended discussion of this issue see FactCheck.Org Confirms What Neither Party Will Admit: Bipartisan Blame for Wall Street Woes).

Democrats Supported the Gramm-Leach-Bliley Act
I assume, however, for the sake of argument, that the Gramm-Leach-Bliley Act contributed substantially to the nation's economic crisis. If this is the case, then Democrats are as blameworthy as Republicans. Although the statute is named for the three Republican members of Congress who sponsored it, the legislation passed with wide support from Democrats.

In the Senate, the legislation passed by a vote of 90-8. In the House, the vote was 343-86. President Clinton also supported the legislation, as did his Secretary of Treasury, Robert Rubin. Although popular liberal discourse portrays the Gramm-Leach-Bliley Act as the product of a vile and corrupt GOP, the historical record tells a different story: both parties supported the legislation.

Many Democrats Supported NAFTA, Including Party Elites
Economists, including respected liberals such as Robert Reich (Clinton's Secretary of Labor), dispute the role of NAFTA in the erosion of jobs in the rust belt. Reich argues that mechanization and technological advancements caused most of the job losses in this region -- not NAFTA. But, assuming that NAFTA caused higher rates of unemployment in the U.S, Democrats cannot claim innocence.

NAFTA passed in the Senate by a vote of 61-38. Democrats split their votes 27-28, with one abstention. In the House, the measure passed by a vote of 234-200. Democrats voted against it, 100-156. Although a majority of Democrats voted against NAFTA, the vote was fairly close. Had more Democrats voted against the measure, they could have helped to defeat it.

Furthermore, many prominent Democrats supported the measure, including Senators Joe Biden, Tom Daschle, Bill Bradley, Christopher Dodd, Ted Kennedy, John Kerry, and Joe Lieberman; Representatives Nancy Pelosi and Bill Richardson also cast votes in favor of NAFTA. President Clinton also lobbied heavily for the legislation, and according to Obama's campaign brochures and advertisements, Hillary Clinton did so as well. Although a slight majority of Democrats voted against NAFTA, the measure still received support from many Democrats, including some of the party's most powerful and respected figures.

Obama: For and Against NAFTA
President Obama very passionately condemned NAFTA as he sought votes in Midwestern states during the Democratic primaries. Obama stated that he would not seek to repeal the legislation but that he would use his authority as president and force Canada and Mexico to "renegotiate" its terms.

After he secured the Democratic nomination for President, however, Obama sharply altered his tone with respect to NAFTA. During a June 2008 interview with Fortune, Obama said that he would not unilaterally seek to reopen negotiations concerning NAFTA. After the interviewer reminded him that he had once described NAFTA as "devastating" and as a "big mistake," he explained that campaign rhetoric often becomes "overheated and amplified."

In March 2008 a Canadian official leaked a memorandum of notes taken during a meeting with Austan Goolsbee, a top economic advisor for the Obama campaign. The notes explain that Goolsbee tried to reassure Canadians that Obama's tough stance regarding NAFTA was simply "political positioning." The Obama campaign, however, vehemently denied this description of the meeting, and some of his Democratic supporters contended that conservatives in Canada were trying to discredit his campaign against Hillary Clinton. Obama's comments later that year, however, suggest that the memorandum accurately reflected his views on NAFTA.

In any event, Obama will not seek to repeal NAFTA or even unilaterally to renegotiate its terms. So, if liberals believe that NAFTA helps creates economic distress for Americans, they should criticize Obama for not trying to alleviate the problem.

Bush's Tax Cuts for the Wealthy
Most economists believe that Bush's tax cuts ultimately led to budget deficits, which will only increase over the next few years. Regardless of whether the tax cuts caused the recession, which most economists doubt, Democrats can actually claim innocence on this issue. The measure authorizing the tax cuts passed in the Senate by a 51-50 vote (Vice President Cheney cast the tiebreaker). The vote was highly partisan, with almost all Democrats voting against the measure and all Republicans voting for it. In the House, the vote was equally partisan.

The Costly Iraq War
In a prior post, I analyzed the Democrats' position on the Iraq War. In the House, a majority of Democrats voted against the war, while a slim majority of Senate Democrats supported it. The Democratic support for the war, however, came from some of the party's most powerful figures, such as Hillary Clinton, Joe Biden, Tom Daschle, John Kerry, and Harry Reid. The war has indeed cost a tremendous amount of resources, but Democrats cannot claim innocence on this issue, despite passionate liberal anger with the military action.

Conclusion
Although the Bush tax cuts, coupled with greater government spending, squandered the Clinton-era budget surplus, this did not create the deep financial crisis the nation now faces. And while "cutting taxes and increasing spending" is bad policy, it does not explain why the country is now in a deep recession.

Economists question other popular explanations for the recession, such as the Gramm-Leach-Bliley Act and NAFTA, but regardless of their connection to the nation's financial roles, Democrats and Republicans widely supported both measures.

Finally, the housing and mortgage-backed securities markets contributed most significantly to the financial crisis. But so many different actors were involved in this situation that responsibility transcends party affiliation and government/private-sector status. Although many liberals argue that the economy supports their claim that Bush is the "worst president" in history, the story is far more complicated than this popular script acknowledges.

Editor's Note: This article is the second in a series of essays that examine the extent of Democratic support for Bush's and the GOP's most criticized policies. This essay examines Democratic endorsement of "conservative" policies that liberals argue caused the recession and that discredit conservative political-economic ideology. You can read the first article here: Hold Them Accountable Too: Many Democrats Supported Policies of the "Worst President" (Part I).

Other readings on the economy:

Bah Humbug: Both Parties Are Guilty With Respect to the Economy, But Neither Offers Concrete Solutions

FactCheck.Org Confirms What Neither Party Will Admit: Bipartisan Blame for Wall Street Woes.

4 comments:

Anonymous said...

I never noticed the NAFTA backtrack by Obama. Amazing. He actually said the same thing during the interview that he denied earlier during the campaign and this did not receive massive criticism at all.

TBone said...

Good blog. Objective and well written with the intent to inform. You got another subscriber. Keep up the good job. I just started my blog because someone said I could write. It's similar to yours but I don't have the background to write like you do.

Darren Lenard Hutchinson said...

Hey TBone! Thanks for the post and for subscribing.

RealityZone said...

In politics there is only one color. GREEN. The mothers milk of politics is money. As they say.

Wall St. runs politics, not Main St. just ask Goldman Sachs.

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