Economic Performance Under the Bush

Economic Performance

Under the Bush administration over the past eight years, GDP growth has averaged 2.23%, which is higher than the GDP average of the other G7 economies. This growth occurred despite the bursting of the dot-com bubble and the September 11th terrorist attacks. By traditional economic measures, this performance would be considered strong. The argument that authors of the Atlantic Monthly piece "If the GDP is up, why is American down?" make is that the GDP is actually a poor measure of a nation's wealth.

At his swearing-in ceremonies the new King of Bhutan trumpeted that nation's measure of wealth, the Gross National Happiness. This concept stands in sharp contrast to the use of GDP to measure wealth. Yet it is not dissimilar to the measures proposed in the Atlantic Monthly article, the Genuine Progress Indicator (GPI). The authors argue that the GDP is an outmoded measure because it does not discriminate between positive and negative transactions, and because it does not measure wealth distribution. Instead, negative transactions should be deducted from the GDP rather than added to it. In order to account for the negative transactions, the GPI attempts to quantify economic factors that are assigned no value in current GDP calculations.

Over the past eight years, GDP growth has been good. But to analyze the economy in terms of GPI, results are less positive. Consider the factors of economic growth in recent years. One is a resurgence in oil consumption, driven by the popularity of the SUV. This has contributed to the deterioration of nonrenewable resources. Moreover, the prospect of further drilling in sensitive environmental areas is now closer to reality as a result of this consumption. This will further weaken the GPI.

Another source of GDP growth has been the Iraq War. This has fuelled growth in the military-industrial complex yet it ultimately contributes nothing to the wealth of the nation. We see that soldiers are killed and injured, national levels of fear appear to have increased, and goodwill in the world has been diminished. War is generally subtracted from the GPI.

In the wake of the dot-com bust, the Federal Reserve lowered interest rates into disequilibrium. This, along with other policy decisions, spurred a bubble in one of the few growth sectors at that time, the housing market. The result was an increase in GDP. Yet, real progress was not made as a result of this housing bubble. Many sales were from one speculator to another. New home construction boomed, but this spread suburbia further into our farmland and natural areas. Now even the GDP is under threat. Banks have closed, jobs have been lost and houses have been foreclosed on. None of this would normally be considered progress, but the GDP measured the housing bubble as such right up until mid-September of this year.

One of the other key measures of our economy is the unemployment rate. This measure provides something of a counterpoint to a growing GDP. The unemployment rate increased in October 2008 to 6.5%. The ability to find meaningful work is a key component of GPI, yet the GDP can grow even if unemployment is high. One of the reasons is that the GDP does not measure wealth distribution. The wealth gap has increased over the past eight years. Average household wealth has increased, but the rate of increase is faster in the top quartile of households. Real wealth in the lower quartiles has stagnated. Again, the GDP would measure the wealth as having grown nationally. But over the past eight years wealth distribution has worsened. While this clearly constitutes economic success for some individuals, it does not constitute economic success for the majority.

The current account deficit has continued to grow. Over the past eight years, the world economy has been characterized by wealth transfer from the U.S. To the rest of the world. Manufacturing jobs are going to Asia, spurring record growth in China and factory closings in the U.S. America's consumers are highly leveraged, their debt fuelling wealth in petroleum rich countries in the Middle East and Venezuela. As with unemployment, this wealth transfer is well-documented and understood in economic circles. Yet, the GDP is viewed as more important. The wealth transfer shows up in the GDP because products from other countries are wholesaled, retailed, transported and marketed in the United States. All of these activities contribute to the GDP but ultimately these transactions contribute to a loss of domestic wealth.