I have been no friend of this expansion. There are several reasons. The first is the mammoth accumulation of debt which has occurred over the last eight years. When I started writing about the economy four or so years ago this was one of the figure that literally jumped right out at me. Secondly, when people have to tell you the economy is doing well instead of actually seeing it for yourself you know you've got a problem - and that is something which has been happening on a regular basis for the last few years. Everyone has continually had to tell me things are really going well.
The heart of the problem starts with job growth - or more precisely, the lack of job growth.
First, we have this graph from Spencer England's Economic Review. It clearly shows that establishment job growth during this expansion was the worst of any expansion since 1958.
As the result of lack of job growth, upward wage pressure is non-existent. As a result, real median household income (that's inflation adjusted) was at a level which according to the Census Bureau is, "not statistically different from a 1999 pre-recession peak." That means we went through an entire expansion without a pay raise for most Americans.
Republicans have become extremely adept at playing with economic figures. Case in point: some Republicans have argued that because the unemployment rate was low when the expansion started the Republican policies didn't have to create more jobs than those created. In other words, because more people were employed at the beginning of this expansion fewer jobs had to be created.
There are several problems with this argument.
First, look at the lack of growth in real median family income. That indicates there was not enough job scarcity to force wages higher. Simple econ: if you have fewer people to apply for job openings you will have to increase wages to attract them. Because incomes didn't increase we have a good idea that job growth was weak.
Secondly, let's look at job growth relative to population growth. According to the National Bureau of Economic Research this expansion started in November 2001 when there were 130,901,000 jobs. The highest level of total establishment jobs occurred in December 2007 when there were 138,078,000 jobs. That means the best reading of total establishment job growth places the figure at 7,177,000 jobs over six years and one month or 73 months. Economists estimate that it takes a minimum of 150,000 jobs to be created every month to absorb population increases and naturally occurring job losses. Using the 150,000 figure and multiplying it by 73 months (November 2001 to December 2007) we get 10,950,000, or the economy must create that number of jobs over the 73 months to absorb job losses and population growth. In other words, the economy needed to create 3,774,000 more jobs than it created to deal with natural economic and population events.
No matter how you slice and dice the numbers, there is no way to make the Bush record of job creation look anything less than terrible.
Let's look a bit deeper into the expansion. Consumer spending makes up 70% of US GDP. So for the economy to expand, people need to keep spending. At the beginning of this expansion, the US was saving about 2% of their paychecks. That means the US consumer was pretty much spending everything they made. Although the US consumer kept spending for the duration of the expansion he didn't see any increase in real income. So - where did this extra money come from?
Massive amounts of consumer debt. Notice the mammoth increase in consumer debt over the last 8 years (thanks to Prudent Bear for the following charts):
And notice the total household debt outstanding is now about as much as total US GDP:
In other words, the US consumer borrowed a boat load of money for the latest expansion. This is a prime reason why some economists (myself included) have been concerned about this expansion. All of the purchases have not been from an increase in earnings; they have been financed on credit.
So, from the consumer side we have the weakest job growth in 40 years, no income growth and a mammoth accumulation of household debt.
Let's take a look at the Federal side of the equation.
Bush tried the Reagan plan of cutting taxes on the upper income levels and increasing spending, basically assuming that the tax cuts would pay for themselves. Unfortunately things did not work out very well. The following chart from the St. Louis Federal Reserve shows that under Reagan government revenues never caught up to government expenditures. Also note they never did under Bush II either.
According to the Congressional Budget Office total revenues from the Federal Government increased from $1.991 trillion in 2001 (when the first tax cuts occurred) to $2.568 trillion in 2007 for an increase of 29%. Over the same period we saw outlays increase from $1.863 trillion to $2.728 trillion for an increase of 46%. As a result the US is once again issuing mountains of debt. Note the following amounts of total debt outstanding from the Bureau of Public Debt:
09/30/2001 $5,807,463,412,200.06 09/30/2002 $6,228,235,965,597.16 09/30/2003 $6,783,231,062,743.62 09/30/2004 $7,379,052,696,330.32 09/30/2005 $7,932,709,661,723.50 09/30/2006 $8,506,973,899,215.23 09/30/2007 $9,007,653,372,262.48 09/30/2008 $10,024,724,896,912.49
Total debt outstanding is now $10,523,955,355,856.66
Notice that since 2003 the total debt outstanding has increased by over $500 billion per year. That means the federal budget was never even close to being balanced even at the outset of the Bush administration. In addition, the US is now heavily dependent on foreign purchasers to finance our way of life. Notice that foreign purchasers of US debt have more than doubled over the last 8 years:
The conclusion is clear. Job growth was extremely weak which lead to income stagnation. To keep up their spending, the US consumer borrowed a ton of money. At the federal level Bush attempted to prove the results of the "Reagan revolution" were a historical anomaly. Instead, we learned that tax cuts don't pay for themselves (again).