The Economic Policies of the Bush Administration

Abstract

The Bush administration inherited an economy which had seen a period of six years of credit-based growth. Although the budget deficit had fallen from 5 per cent of GDP in 1985 to 3 per cent in 1989, the expectation when President Bush assumed office was that the US economy would at best experience a period of slow growth and at worse move into a recession. The prospects for a continued decline in the budget deficit due to increased tax revenue from economic growth were therefore not too good. A renewed growth in the budget deficit was a definite risk. The challenge was to maintain economic growth, which in the short term meant managing a soft landing for the US economy, while reducing the budget and trade deficits. Throughout the Reagan years there had been constant reference to the need to reduce the budget deficit, but the economy continued to grow all the same. At the same time it was possible to argue that America could continue to finance its debt. There was also a growing belief that the dead weight of debt had, by 1989, reached the point at which it threatened the long-term prospects for the US economy.