dippin

The thing about the economy is that it moves a lot slower than people think. It is very rare for anything to have an immediate impact on actual economic conditions that we face daily.

How much of all of this was Bush's "fault?" Hard to quantify, and honestly I think of economics as being more than the morality play of the mainstream media where any problems can only come about from the moral shortcoming of a particular person, and not the sort of systemic hiccups that any economic system goes through from time to time.

The thing, though, is that while markets have cycles, sometimes governments can worsen conditions significantly or vice versa.

In this case, the causes for this mess are numerous, but we do know of three things that made it much, much worse than it needed to be.


- Alan Greenspan set a very expansionary monetary policy a few years ago. 1% fed rates made money extremely cheap. In an upward cycle, this is precisely the sort of thing that fuels speculative bubbles. This is neither party's fault as fed policy is independent from the executive branch.

- Regulation lagged behind significantly. Methods for determining margin calls and net capital requirements were poorly understood, if they were understood at all. Here is a good read: Recipe for Disaster: The Formula That Killed Wall Street
This, of course, is both party's fault.


- Finally, there is the whole deficit issue. And this IS Bush's fault. As someone who is concerned about deficit and the debt, I just don't see how you can ignore this. Bush's deficits were large and significant, and had to be financed from abroad. Running a deficit during an economic expansion is like throwing fuel to the fire. It accelerates inflation, increases costs, increases imports, etc. Which is why basic economic knowledge says that, just like the tale of the bees, you should save while times are good to spend when they arent. Bush did the opposite, sped up the bubble and therefore is significantly responsible for the mess.


As far as when we should start blaming Obama, well, anything before at least one year in office is too little to evaluate economic policy. Decisions regarding investment, stocks, hiring and firing take a few months to change direction.

If by mid 2010 we are worse than what most projections expect, then we can start talking about it. Before that, its just the toxic waste that he inherited. Just as Bush wasnt responsible for the dotcom bust (although he was responsible for mishandling the recovery).