While some aspects of the Bush stimulus plan are theoretically sound, the benefits of the stimulus plan might not reach all sections of the population and does little to create new jobs. Neither do they encourage higher productive output. In order to boost productivity and invite more investments, the reduction in business taxes should be accompanied by reduction in spending for a longer duration of time. Unfortunately, this economic principle was unheeded by the Bush Administration. The eight years under the leadership of George Bush had put the economy under stress in other indirect ways as well. For example, the invasion of Iraq in 2003 has had a negative impact on the domestic economy. Not only did this illegal invasion and occupation cost thousands of American lives, it had usurped a greater share of the federal budget for building expensive ammunition and in the incurring of other military expenses.
The proponents of the rebates plan argued that the initiative will infuse new money into the ailing economy, thereby helping revive demand and production. But since only the top forty percent of the American populace pay most of the taxes, the rebate checks will only reach two fifths of all consumers. At this juncture, the issue took on a political hue, as the Democratic Party has its support base in the middle and lower classes, which would benefit only marginally from this plan. So, political maneuvering had come in the way of decisive counter measures from the government. Leaders of the Democratic Party also played the race card in thwarting the tax rebate proposal. For instance, Senator Hillary Clinton (presently the Secretary of State) argued that “for the White House to propose spending over $100 billion to jumpstart the economy, while shortchanging assistance to the 50 million families which struggle the most and are most likely to inject those funds into the economy makes no sense…. It would disproportionately leave out African American and Hispanic families who have, on average, lower incomes than white families.” (Hillary Clinton, taken from Hoar, 2008, p. 42) Hence bipartisan politics had played a major role in thwarting implementation of a robust and decisive economic stimulus plan. This is true during the last couple of years of the Bush tenure, as well as the initial months of the Obama tenure.
When President Obama took the reigns of White House, the task set in front of him was ominous and daunting. The token measures of economic remedy advanced by the Bush Administration were to prove insubstantial. Hence, the responsibility of turning the economy around fell squarely on his shoulders. But, even he could not escape the hindrances created by bipartisan politics. Many economists have expressed their lack of satisfaction over the stimulus package that President Obama has brought forth. One of the issues of contention is the bailing out of private banks using tax-payer money. With the bankruptcy of Lehman Brothers, a series of bankruptcy claims followed. A few time-tested financial institutions, if not actually bankrupt, were not far from it. Obama Administration’s proposal to bail out the ailing banks and set right what are called “toxic assets” of these banks and financial insitutions would gain support from both Democrats and Republicans. But, some analysts believe that it is not the most prudent method of redeeming the situation. Nobel Laureate Paul Krugman is one among many economists who feel that the measures taken so far are not sufficient. In his July 9 column for the New York Times, Krugman asserts that “as soon as the Obama administration-in-waiting announced its stimulus plan — this was before Inauguration Day — some of us worried that the plan would prove inadequate. And we also worried that it might be hard, as a political matter, to come back for another round” (Krugman, 2009). Krugman sums up the efforts of the Obama Administration succinctly,
“It’s also reasonable for administration economists to call for patience, and point out, correctly, that the stimulus was never expected to have its full impact this summer, or even this year. But there’s a difference between defending what you’ve done so far and being defensive. It was disturbing when President Obama walked back Mr. Biden’s admission that the administration ‘misread’ the economy, declaring that ‘there’s nothing we would have done differently’. There was a whiff of the Bush infallibility complex in that remark, a hint that the current administration might share some of its predecessor’s inability to admit mistakes. And that’s an attitude neither Mr. Obama nor the country can afford.” (Krugman, 2009)
In the final analysis, it appears that the governments under the leadership of George Bush and later Barack Obama have not taken bold and substantive measures to cope with the prevailing economic crisis. The Federal Reserve, which has enormous influence in shaping the economic direction of the nation, has not played a major role in reviving the economy. Through adjusting the federal Funds Rate or Discount Interest Rates, the Federal Reserve can act as a catalyst in reviving the ailing economy. Furthermore, “in the absence of a workable political system that would allow the use of either tax or fiscal policies to control the economy, the Fed is responsible for using its monetary policy tools to make adjustments to control both inflation and economic growth. While the Fed’s primary interest continues to be preventing inflation, increasingly its actions are a result of growth trends taking place within the economy” (Gnuschke, 2007, p.5). At this juncture, what is required is a collaborative effort from the Obama team and other government agencies in drawing up a comprehensive recovery plan for the economy.