Back in 2010, when asked by Jim Lehrer to name the specific Bush administration policies that caused the economic crisis, Treasury Secretary Tim Geithner said:
The financial crisis was caused by a set of policy choices that we made as a country over a significant period of time, certainly the decade before that. So, we saw financial institutions across the country take on a huge amount of risk without restraint. You saw the government of the United States living way beyond its means, borrowing with — from future generations to finance a set of programs and tax cuts, without paying for them.
In other words, tax cuts and deregulation were the primary causes of the financial crisis. And notwithstanding the obvious irony of an Obama official disapproving of government borrowing, Geithner’s response had been the Obama administration’s official explanation for the economic crisis since the early days of the Obama presidency.
Now, with the already tepid economic recovery hitting a wall, Obama has dusted off this line of attack, once again warning the country against “returning to the very policies that got us into this mess.” Indeed, this was the main theme of the economic address Obama delivered last week. Echoing the remarks of Geithner two years earlier, Obama told the crowd:
We were told that huge tax cuts — especially for the wealthiest Americans — would lead to faster job growth. We were told that fewer regulations — especially for big financial institutions and corporations — would bring about widespread prosperity. … So how did this economic theory work out?
But how exactly did tax cuts and deregulation cause the collapse? Obama never makes it quite clear, and this is by design. He knows that there was nothing specific to these policies that caused the financial crisis. If he were to provide too much detail, it could easily be refuted.
In fact, it’s difficult to even imagine what a plausible explanation would sound like. Would Obama’s argument be that the 2001 tax cuts put extra money in people’s pockets, ultimately leading to the housing bubble? Doubtful, since that would be quite a novel theory, unlikely to garner support even in the most progressive circles. And is Obama claiming that by eliminating certain financial regulations, Bush made it possible for banks to fill their balance sheets with billions of dollars of toxic assets? Perhaps. But if this is the case, Obama should tell us which regulations Bush eliminated.
Obama hasn’t been able to come up with any plausible explanations for how tax cuts and deregulation caused the financial crisis. That should tell us something about the argument’s credibility.
But leaving aside his lack of a clear explanation on the topic, I have to wonder whether Obama really wants to hang his hat on “United States living beyond its means” as a cause of the financial collapse. For a president who signed off on an $800 billion stimulus bill, you’d think he wouldn’t be so keen on criticizing government spending. If Obama is looking to distinguish himself from the previous president, focusing on spending is probably not the best way to go about it.
As for “deregulation,” it’s remarkable how Obama still mentions this as a cause of the economic collapse, considering how this claim has been exhaustively debunked. Bush did not deregulate the financial industry, or even create a “general atmosphere of deregulation,” as he is so often charged with doing. This is why you never hear Obama or his supporters provide specific examples of the regulations he eliminated. In fact, Obama himself admitted this during his economic speech, noting that Bush approved more regulations during the first three years of his presidency than Obama did. Hardly the actions you would expect from a president trying to create an “atmosphere of deregulation.”
Of course, the problem of Obama focusing on the wrong policies as the cause of the crisis goes beyond partisan one-upmanship; it distracts us from better understanding and addressing the true causes of the global economic crisis. And, in light of JPMorgan’s recent $2 billion loss on derivative trades, it’s apparent that Obama hasn’t turned his attention to any of the crisis’ actual causes.
Mendy Finkel is a corporate attorney practicing in New York. He is a graduate of Columbia Law School.