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George H.W. Bush and Economic Policy
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Success in Policies
- Accomplishments: the Clean Air Act, Americans with Disabilities Act, advances in negotiations for Uruguay's trade, and negotiations for a North America Free Trade Area.
- The "flexible freeze" policy never amounted to much because the administration failed to propose any actual cuts in expenditures nor did it make room for new programs.
- The 1990 Budget Agreement helped put the budget on a more satisfactory long-run path.
- It is believed by many that neither monetary nor fiscal policy responded vigorously enough to the recession,
George H.W. Bush and Economic Policy
Fed Action and Views on Monetary Policy
- The initial actions of the Fed and the President's views on Fed involvement at the beginning of his administration are unclear.
- However, Bush eventually favored the idea of the Fed supporting the economy due to the recession.
- The Fed tried to support the economy by reducing interest rates.
Macroeconomic Theory
- Bush's goal of reducing the deficit was not as successful as he had planned. He did not want to increase taxes, an approach some believe is the only answer to deficit reduction, so he instead favored cutting government spending. However, his attempts to do so were too small to have a great effect on the deficit overall.
- The Fed action of reducing interest rates should have stimulated the economy by promoting consumption. Unfortunately, this action came too late in the presidency to significantly lessen the recession.
The Economy
- At the beginning of Bush's administration, the economy Reagan had claimed was peaceful and prosperous was really nearing a recession.
- Bush inherited economic issues that had been either caused by or simply ignored by the Reagan administration.
- Pressures on the economy included overbuilt commercial real estate resulting in deposit insurance and lax regulation, weakness in financial institutions, and decreased defense expenditures.
President Bush's Response
- He wanted to impose a "flexible freeze" to keep expenditures down. The idea was for some expenditures to be cut in order to make room for increasing others.
- Bush agreed to a budget agreement in 1990. It looked to the long-run for balancing the budget with the deficit reduction beginning some two years after the agreement was put into effect.
Bush's Economic Philosophy
- Bush said balancing the budget was his top priority, but his efforts to do so were constantly hindered by his "no new taxes" pledge.
- He held conservative views on government spending; he believed that issues like homelessness and crime were important, but that the government should not use more tax money to fix such issues.
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