Eight years after the collapse of Lehman Brothers and the enactment of the Troubled Asset Relief Program (a.k.a. “TARP” or “the bank bailout”), experts continue to debate which factors deserve the most blame for causing the 2008 financial crisis and the Great Recession. Some emphasize the role played by global “current-account imbalances” — most notably, those between China and America, and those within the euro zone. Princeton economist Hyun Song Shin, by contrast, believes the chief problem was, not a “global savings glut,” but a “global banking glut.” Others have focused on the impact of loose monetary policy, misguided housing policies, and financial deregulation.
It’s an interesting debate (the Economist magazine published a useful summary in 2013), and it will continue for years to come. Yet one argument that should have been discarded long ago is the claim that George W. Bush’s tax cuts helped caused the crisis.
Barack Obama made this argument during the 2012 presidential campaign, and Washington Post fact-checker Glenn Kessler promptly corrected him. “It is time for the Obama campaign to retire this talking point,” Kessler wrote, “no matter how much it seems to resonate with voters.” He noted that the final report published by the government-appointed Financial Crisis Inquiry Commission “makes no mention of the Bush tax cuts.”
Alas, Hillary Clinton and Tim Kaine appear determined to keep the talking point alive.
“Let’s stop for a second and remember where we were eight years ago,” Clinton said during the September 26th presidential debate. “We had the worst financial crisis, the Great Recession, the worst since the 1930s. That was in large part because of tax policies that slashed taxes on the wealthy, failed to invest in the middle class, took their eyes off of Wall Street, and created a perfect storm.”
Later in the debate, after slamming Donald Trump’s tax plan as “trumped-up trickle-down,” she once again blamed upper-income tax cuts for triggering the crisis. “Trickle-down did not work,” Clinton declared. “It got us into the mess we were in, in 2008 and 2009. Slashing taxes on the wealthy hasn’t worked.”
Kessler, the Post fact-checker, issued a harsh rebuke. “Clinton’s effort to pin much of the blame on Bush’s tax cuts is rhetorical poppycock,” he wrote. “No credible analyst would cite the Bush tax cuts as playing a key role in spurring the crash. If she had meant to pin the blame on rising income inequality, she should have said so clearly, without putting a political spin on the policies of a Republican president.”
Unfortunately, that didn’t stop Tim Kaine from trotting out the same tax-cut argument at Tuesday’s vice-presidential debate. The Trump tax plan, Kaine said, “is massive tax breaks for the very top, trillions of dollars of tax breaks for people just like Donald Trump. The problem with this, Elaine, is that’s exactly what we did 10 years ago and it put the economy into the deepest recession — the deepest recession since the 1930s.”
It’s reasonable to criticize the Bush tax cuts as fiscally imprudent. It’s also reasonable to argue that they failed to deliver the broad-based economic benefits that many Republicans had promised. But it’s simply absurd to claim that they were a significant cause of the 2008 financial crisis.
Do Clinton and Kaine privately understand that? Or do they actually believe their own rhetoric?