Bush’s Enron Economy

George W. Bush is our first MBA president, educated at Harvard no less, so after his first three years in office one might expect to see the effects of financial engineering and numerical wizardry applied to our national finances. Strong job and income growth for the population? Elimination of annual budget deficits? Declining national bankruptcy rates? These measures moving in a positive direction would signal an executive with a prudent, conservative approach to managing the nation’s economy and finances. What we have seen during the president’s first three years, however, reflects a fiscal mismanagement at the national level reminiscent of Enron’s demise at the corporate level.

The essence of Enron’s deceit was a manipulation of appearances to disguise the true state of the company’s finances. Earnings were overstated by phony assets sales and other maneuvers. Expenses were understated by hiding operating costs and by placing debt in sham companies off the books. The current talk in the Bush administration of a rebounding national economy and explosive growth in GDP are reminiscent of these corporate sleights of hand. Expansion in Gross Domestic Product, typically used as a measure of national economic health, looks reasonable on the surface, yet when one looks further at the details it is apparent that the GDP figures reflect explosive growth in governmental spending while the private sector remains essentially stagnant.

With the strong growth in GDP during the fourth quarter of 2003, the cumulative increase in nominal GDP during the three years since Bush took office is 11.9%. Yet when one looks at how this number was achieved, the truth behind the rebounding economy becomes apparent. The federal government component of GDP has increased by 30.9%, leaving only a 10.3% increase in non-federal GDP on a nominal basis. When one backs out the cumulative CPI increase of 6.0% during the past three years, this leaves an annual real increase in non-federal GDP of only 1.5%. This rate is slower than the nation’s annual rate of population growth. Furthermore, the Wages and Labor component of GDP has essentially remained flat for three years on a real basis, having increased only .8% cumulatively, and BLS figures show a total of 2.5 million jobs lost. These numbers explain why the vast majority of Americans are not experiencing good economic times, but are increasingly worried about income and job prospects. The stress on the general economy is evident in the fact that both the national home foreclosure rate and the national personal bankruptcy rate are at record levels.

Perhaps the most striking feature of Bush’s economic stewardship is the swift reversal in the government’s fiscal position. Whereas the federal government exhibited a budget surplus equivalent to 2.6% of GDP in the year before Bush took office, it has taken him only three years to turn that surplus into a 3.6% deficit as of year end 2003. It is likely that the federal deficit will hit close to 5.0% of GDP in 2004, representing a negative shift of approximately 7.5% of our national output in only four years.

And what has the president’s response been to this fiscal deterioration? A proposal to make his earlier tax cuts permanent. According to the president’s public statements, it’s the people’s money, not the government’s, so it’s best to give some of it back. Like much of what Bush says, this is partly true. He would be giving back the people’s money if the government were running a surplus, but given the governmental deficit, what Bush is effectively doing is handing Americans money that he has taken out as a cash advance on the national credit card. As he pushes the nation to assume massive debts while continuing to profess that all is well with the economy, Bush’s maneuvers increasingly seem reminiscent of the tactics embraced by the management team at Enron prior to the firm’s collapse. Though they weren’t in the same class at Harvard, Bush has apparently learned from the same finance textbook favored by his friends Jeff Skilling and Ken Lay at Enron. The bankrupt company’s “E” sculpture was recently sold at auction in Houston; perhaps a better use would have been an installation in the White House rose garden.