Economic Cycles

There is a natural cycle that trends up and down in the economy, which I've observed several times over my lifetime. Now that it's the political season, we hear lots of doom and gloom over the current slump.

The news media, shallow partisans as they happen to be these days, would have us believe the economic problems should all be hung on their public enemy #1, George Bush. But as we analyze some of the root cause problems, how many of them are Bush's fault?

Energy Prices. Why is oil over $100 a barrel and gas over $3 at the pump? Because of the Iraq war?
Partly, but it's a much deeper problem than that. I caught a report yesterday that basically said there isn't a supply and demand problem, but a problem with the US Dollar. So if you want to blame Iraq as a contributory factor to the out-of-control spending of our government that has weakened the dollar significantly, you would be partly right. But to do so would fairly need to include the Senate and House, where both Republicans and Democrats have spent wildly and irresponsibly over the past decade and contributed to the currency problem.

Credit Crisis. Why the big crisis that started with mortgage defaults and is apparently now extending into consumer credit? Is Bush responsible?
If you consider Bush's clearly stated goals of opening home ownership to the population as the reason, that might be partly correct. But did he force lenders to open up the subprime market as they did, leading to mortgages granted to a huge population that truly could not qualify? Who is really culpable in the mess, where unqualified borrowers were given adjustable and teaser rate mortgages that would increase beyond their ability to pay in two or three years?
Sure, the lenders are culpable. So are the borrowers, who should have known better. And even the government, which put pressure on lenders to make loans to high-risk borrowers because of their race.

Consumer Confidence. Who created the fear among consumers that has caused most of them to reduce spending? High energy prices contributed. But the biggest contributor was the media, so anxious to report hour-by-hour for the last two years that the economy's headed for the tank. Ever heard of a self-fulfilling prophecy? This is a terrific example.

You may recall there was a short recession at the end of the Clinton presidency, although it received almost no press coverage until after Bush was inaugurated. Then, of course, they immediately began hammering Bush as if he caused the recession instead of inherited it.

Then you also might recall that Bush got his tax cuts through congress and the economy improved dramatically. That also was barely reported. Just in time for 9-11. The economic slump that resulted from that event was very predictable, but again, we recovered in remarkable fashion.

Can the next president impact the length and depth of this recession?

I think only on the margins. If the president can get congress to spend less and tax less, that should improve the value of the dollar. Also, if the president can inspire confidence among the population to go out and start buying things again, that will help as well. But that's about it.