Less than a year ago, when business was booming and Iraq was in free fall, George W. Bush could only dream that the economy would be the most important issue to Americans. At speeches and in interviews, he seized any chance to change the subject to the record economic expansion and job growth on his watch. When asked by Fox's Neil Cavuto in late January 2007 about his father's public outburst against the media's focus on Iraq in the face of good economic numbers, the President said, "What I'm more concerned about than anything is, is whether or not people are putting more money in their pocket... I really don't worry about what people are saying about me."
Now, with little time left in his presidency, the economy is the runaway top issue on Americans' list of concerns. A CNN/Opinion Research poll conducted last week, for example, found the economy was by far the most important deciding factor in choosing the next President, besting Iraq 42% to 21%. But what was supposed to be the legacy saver for the Administration is shaping up to be its last, worst bad news story. "Right now the economy is clearly the driving issue in terms of what people are worrying about," says G.O.P. pollster David Winston. "Bush was hoping for a better story to tell."
And that was even before the recent meltdown on Wall Street. Now, with the collapse of Bear Stearns and growing concerns about the health of other investment and commercial banks, Bush faces a high-profile failure against the backdrop of another nine months of what he calls "challenging" economic times. The dollar is hitting new lows every day, the economy is slipping into recession, and the Fed's determination to fuel liquidity at the same time is raising the fear of stagflation.
In Washington, where the political stakes ahead of the elections for the White House and Congress next fall are high, the blame game is in full swing. Democrats in charge of Congress say Bush and former Federal Reserve chairman Alan Greenspan did nothing while the mortgage industry created a massive Ponzi scheme with its flurry of subprime home loans. "This is an Administration that has basically put regulation on the back burner," says Israel Klein, deputy staff director at the Congressional Joint Economic Committee. Democrats point to last-minute regulation by both the White House and the Fed, like new lending rules imposed by current Fed chairman Ben Bernanke in mid-December and a Housing and Urban Development agency rule announced last Friday, as proof of a too-little-too-late approach.
The White House responds by claiming that Congress is the one that has been asleep at the wheel. When asked Monday whether the Administration would reconsider Democratic legislation to have the Federal Housing Administration buy up subprime mortgages and provide more generous payment terms to strapped homeowners, Treasury Secretary Hank Paulson countered that the Democrats still had not dealt with alternative legislation pushed by the President.
But Democrats are likely to win that battle in the public mind. The mortgage crisis that brought down Bear Stearns built over six years while Bush was in office and the G.O.P. controlled Congress. Democrats are also pushing the idea that the Administration is more interested in rescuing Wall Street than Main Street. Senators Clinton and Obama both blamed Bush for the country's woes. "We obviously will continue to monitor the situation and when need be, will act decisively, in a way that continues to bring order to the financial markets," Bush responded.
The financial crisis also means that John McCain will have to start shifting from his national security comfort zone sooner than he might like. On Monday, McCain expressed his confidence in the Fed's ability to handle the crisis, but in the coming weeks, he'll have to do better than those kinds of generalities. The pressure will be on the Republican nominee to show in detail how he would fix the economic situation, and his recent pronouncements about cutting taxes and spending surely will not be enough. That will also hasten the inevitable split between McCain and the President. He notably didn't mention Bush in his statements about the stewardship of the economy on Monday. "While it's difficult for Bush," says G.O.P. pollster Winston, "It gives McCain an opportunity to distinguish himself."
The Administration is trying to push back against the allegation that they're out of touch. Asked if managers at high-flying mortgage companies and investment firms were getting off too easy, White House spokesman Tony Fratto said, "That's an important question and that absolutely bothers us." But, he said, "sometimes the market needs to learn lessons and they're learning it the hard way." So is everyone. Some economists are now predicting a recession that could last into 2010. By then, the Bush presidency will be a memory, and it looks as if the last year of crisis, not the seven years of expansion that preceded it, may be what people remember.