January 11th, 2009
06:51 AM GMT
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LONDON, England - What is it like being George W. Bush right now?  With Barack Obama's presidential inauguration just a few days away, how is the present occupant of the Oval Office spending his last few days in office?

The first seven years of the Bush administration witnessed strong economic gains.
The first seven years of the Bush administration witnessed strong economic gains.

Well, clearly there are the usual decisions to be taken, meetings to be held, visits to be made, people to be hosted and so on.  But it's my guess that there is a question that must echo ever more loudly in the mind of any outgoing president of the United States as he prepares to leave the White House: what will my legacy be?  And once Mr. Bush has packed his toothbrush and headed back to Texas, the minute-to-minute pressures of office will no longer distract him.  As he chews languidly on, say, a pretzel that question will no doubt pop unbidden into his mind.

History can be a fickle prism.  What journalists say today about George W. Bush's legacy may not be what the historians looking back from the 22nd century will see.  But for now it is clearly 9/11 and his response to it, above all the invasions of Iraq and Afghanistan, that will be held up as the defining issues of Mr. Bush's administration.

Millions of words will continue to be written about the rights and wrongs of his national security and foreign policy, which under the Constitution are the central concerns of the U.S. president.  But one of the pervading ironies of U.S. politics is the way that Americans ultimately vote for their president on the basis of economic achievement and promise.

So what of the Bush economic legacy? It certainly looks ugly.  On Friday last week we learned that the U.S. economy had shed 524,000 non-farm jobs in December 2008, bringing the total number of jobs lost in that lamentable year to 2.6 million. The day before, the non-partisan Congressional Budget Office put out a forecast that the federal deficit would balloon from $455bn in fiscal 2008 to $1.2 trillion, or more than 8 percent of GDP, in fiscal 2009.  That's before you factor in the huge additional fiscal stimulus that Mr. Obama will announce soon after taking office.

Breathtaking, especially when you remember that under the Clinton administration the federal budget moved into surplus, and even stayed there for the fiscal year of Mr. Bush's first inauguration in 2001.

But that was the last year he balanced the federal budget; then came the big tax cuts that were his economic signature, plus the wars in Iraq and Afghanistan, thought likely to cost Washington a couple of trillion dollars (some economists say much more) by 2017.  (To put that into perspective, $2 trillion represents seven weeks' worth of the entire U.S. national output.)

But back to January 2009 and the recession that George W. Bush is handing on to Barack Obama. What triggered that, of course, was the implosion of the U.S. housing market in 2007.  It has battered tens of millions of ordinary Americans, exposed the reckless lending of many banks, shredded the balance sheets of many a proud name on Wall Street, triggered a bewildering global financial turmoil and forced a Republican President to swallow free market principles and mount a $700 billion programme of government bailouts.  

From this vantage point, the Bush legacy could hardly look worse.  But no actor would be judged solely on his last major performance; no sporting hero would stand or fall on the basis of how well he played in the last season before his retirement.

The fact is, the first seven years of the Bush Administration were years of strong GDP growth: before 2008, the slowest rate at which the U.S. economy grew was 3.2 percent in 2001 (during a cyclical downturn) and the fastest was 6.6 percent in 2004, with 2005 and 2006 not far behind that blistering rate.

There were some other strong points - at least until the cataclysm of 2007 and the perfect storm of collapsing house prices, shrinking economies and rising commodity values.  Under the stewardship of Alan Greenspan, the Fed kept inflation in check.  The Dow soared some 34 percent in the first six Bush years, peaking at 14,164 in October 2007.  Under a light regulatory regime the financial sector burgeoned.  U.S. businesses and consumers alike reaped huge rewards from the rollout of new technologies.  The Internet came of age.  Cheap consumer goods from China boosted the feel-good factor.  Cell phones and iPods became must-have accessories for most Americans; well into 2007, they could have been forgiven for thinking they had never had it so well.

But then came that terrible cataclysm, the steady slide into recession, a near-40 percent decline on the Dow from that heady peak and the brutality of unemployment for more than 7 percent of the U.S. workforce.

So the years of plenty ended in misery - there'd been plenty too much plenty, it turned out.  America had partied, and partied too hard; the present hangover is proving the most painful since the one that afflicted our grandfathers four score years ago.

But is the U.S. president to blame?  Will history look kindly on him, saying it was the blind greed of bankers that led them to lend more than humble borrowers could ever afford, and so trigger the housing crash?  Will George W. Bush be seen as the victim of powerful global forces that not even the most powerful elected official on Earth could foresee, let alone resist?

What do you think?  Will we remember the many boom years or just the bust?  Once the U.S. economy recovers, will Mr. Bush's economic legacy be seen in a more positive light?

Bob Parker of Credit Suisse Asset Management discusses your views



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