President George Bush’s Economic Policies

Introduction

George Herbert Walker Bush served as the 41st American president for one term from 1989 until 1993. This period was marked by significant global geopolitical shifts that had a ripple effect on the US economy. Additionally, the previous president’s decisions affected the US economy, leaving it in a state of recession. Thus, politics and the functioning of the economy are highly dependent, and the former impacts the fiscal and monetary policies established by the country. Based on this understanding, this paper examines the objective monetary policies implemented by the Federal Bank and specific economic conditions as well as fiscal policies adopted by President Bush.

Fiscal Policies

The concept of budgetary policy refers to the strategies that a government of a state employs to regulate the economy by adjusting its spending and taxes. A notable issue that President Bush faced upon his governance was a gradually receding economy of the state. The significant policies that this president introduced included a substantial increase in the taxes, despite his promise to reduce them.¹ For instance, the personal tax rate jumped to 31 percent from Regan’s 28 percent. It can be argued that this economic strategy was forced by the challenging environment of the US economy.

It should be noted that the administration of President Bush dealt with a significant recession. The country experienced difficulties after Ronald Regan’s presidency, during which Bush served as the Vice President. It was characterized by expensive Cold War spending and tax cuts.² However, upon the end of the Cold War, the incentive to finance military developments was mitigated, which led to issues within the economy. Table 1 presented in the Appendix provides an assessment of major economic indicators such as real gross domestic product (GDP), unemployment rates, consumer price index (CPI), and 10-year Treasury, Fed funds, discount rate, and deficit or surplus.

Major international events affected the US economy and the fiscal policy of the government. Within the previous years, covert Cold War missions to counter the influence of the Soviet Union increased defense spending, which affected the US economy.³ Additionally, other political events during Bush’s presidency include the fall of the Berlin Wall in 1989, the collapse of the Soviet Union in 1991, and the invasion of Iraq.⁴

Although these events opened up opportunities for the country to dominate trade globally, they were not fully exploited. Instead, the peace brought about by the fall of the Soviet Union ended the arms race that negatively affected the US economy as a net arms exporter.⁵ The saving and loans industry was also collapsing after years of weak regulation. Early in 1989, Bush proposed a bailout to save failed savings and loan firms using taxpayers’ money.

Thus, the fiscal policy employed by President Bush was restrictive as the focus was on increasing taxes and minimizing government spending. This is due to the increase in tax levels imposed on individuals and businesses and budget cuts. However, the financing of military operations was not minimized and led to significant inflation between 1989 and 1991, which is displayed in Table 1.

Monetary Policies

Monetary policies differ from fiscal strategies because they are developed and implemented by the state’s monetary authority, for instance, the Federal Reserve System (the Fed). Thus, the impact of political events is less evident within this domain. However, both the president and the Fed can cooperate because the former can make requests regarding specific regulations. The prevailing monetary strategy during President Bush’s term was the policy of contraction.

The Fed’s primary concern during the discussed period was unemployment and inflation. As becomes evident from the analysis in Table 1, inflation rates in 1989 were extremely high, totaling at 4,67% and increasing in the following two years, which are estimated at 1,55%.⁶ Additionally, unemployment rates were estimated at 5,4% and reached 7,4% in 1992.⁷ The policy of contraction was pursued by the Fed, which was characterized by a reduction of spending that was aimed at reducing inflation.

However, Nesvisky argues that the policy of the Fed was adequate as these actions helped ensure stability within both inflation and unemployment rates.⁸ Thus, while the policy of the Fed was not perceived as positive, it helped stabilize the economy and improve its state. According to the Federal Reserve Bank of St. Louis, the CPI can be used to evaluate a recession and inflation in the country.⁹ Under Bush’s presidency, the CPI increased continuously, which is another indicator suggesting that the primary concern was inflation.

Thus, based on the evaluation of the Fed’s monetary policy, it can be argued that it corresponded with President Bush’s strategy. Moreover, it can be concluded that the Fed contributed to the recession from 1989 until 1991 by failing to adequately and timely respond to economic pressure. The main issues were the decline in money circulation following tax increments that affected the economy before and caused a recession. In 1991, the Fed lowered both the discount rate and the federal funds rate by three percentage points. These actions were necessitated by a declining economy and were necessary to fight inflation.

The expansionary policies of reducing the discount and federal funds rate increased the amount of money in circulation in the economy. By having lower rates, commercial banks could extend the same benefit to their clients and offer lower rates on loans and savings. Another primary response from the Fed during the period came in the form of cuts in the required reserve balances in the early 1990s. This move did not offer the immediate remedial effect desired by the Fed and the president, as the recession continued throughout the 1990s.

Conclusion

Overall, this paper presents an assessment of major economic and political events under the presidency of George W. H. Bush. It is evident that the political climate of both the country and the international community impacted the economy. President Bush faced many difficulties due to previous policies and a change in the demand for military developments, which led to a recession. The inflation rate and unemployment affected both his policy and the monetary strategy applied by the Federal Reserve Bank.

Appendix

Bibliography

“BLS Data Finder.” BLCS Beta Labs. 2019.

“Economic Snapshot: CPI And Core CPI.” Federal Reserve Bank of St. Louis. Web.

“George H. W. Bush.” The White House.

Harwood, John. “George HW Bush’s Compromise On Raising Taxes Defied Conservatives – And Altered American Politics.” CNBC.

“Monitoring the Economy.” U.S. Department of the Treasury. Web.

Nesvisky, Matt. “U.S. Monetary Policy During The 1990S.” National Bureau of Economic Research.

Footnotes

1. John Harwood, “George HW Bush’s Compromise On Raising Taxes Defied Conservatives – And Altered American Politics,” CNBC. Web.
2. John Harwood, “George HW Bush’s Compromise on Raising Taxes Defied Conservatives”.
3. John Harwood, “George HW Bush’s Compromise on Raising Taxes Defied Conservatives”.
4. “George H. W. Bush,” The White House. Web.
5. John Harwood, “George HW Bush’s Compromise on Raising Taxes Defied Conservatives”.
6. “Monitoring the Economy,” U.S. Department of the Treasury. Web.
7. “BLS Data Finder,” BLCS Beta Labs. Web.
8. Matt Nesvisky, “U.S. Monetary Policy During The 1990S,” National Bureau of Economic Research. Web.
9. “Economic Snapshot: CPI and Core CPI,” Federal Reserve Bank of St. Louis. Web.