Throughout the region, economic reform and political openness were beginning to advance. Kuwait held its first election in which women were allowed to vote and hold office. In 2009, women won several seats. Women also held government positions in Oman, Qatar, the United Arab Emirates, and Yemen. Bahrain named a Jewish female ambassador to the United States. Jordan, Morocco, and Bahrain held competitive parliamentary elections. While it remains a highly ordered monarchy, Saudi Arabia held its first municipal elections, and King Abdullah founded the kingdom’s first university open to both Saudi women and men. Across the region, trade and investment expanded. Internet use rose sharply. And conversations about democracy and reform grew louder—especially among women, who I am confident will lead the freedom movement throughout the Middle East.
In January 2008, I traveled to Abu Dhabi and Dubai, two Arab emirates that had embraced free trade and open societies. Their downtown centers boasted glittering skyscrapers filled with entrepreneurs and business professionals, men and women alike. In Dubai, I visited with university students studying in fields as diverse as business, science, and history.
On the last night of my visit, the forward-looking crown prince of Abu Dhabi, my friend Sheikh Mohammed bin Zayed, invited me to his desert retreat for a traditional dinner. He told me a number of government officials would join us. I expected middle-aged men. But I was wrong. The crown prince’s government included young, smart Muslim women. They spoke about their determination to continue reform and progress—and to deepen their friendship with the United States.
With Sheikh Mohammed bin Zayed. White House/Eric Draper
The sands of Abu Dhabi were a long way from the Inaugural platform that I stood atop in January 2005. But in the desert that night, I saw the future of the Middle East—a region that honors its ancient culture while embracing the modern world. It will take decades for the changes set in motion in recent years to be fully realized. There will be setbacks along the way. But I am confident in the destination: The people of the Middle East will be free, and America will be more secure as a result.
*Governor Mike Leavitt of Utah, who became my Environmental Protection Agency director and Health and Human Services secretary; Governor Paul Cellucci of Massachusetts, who served as my ambassador to Canada; and Governor Marc Racicot of Montana, who led the Republican National Committee from 2002 to 2003.
**Abdullah had ruled Saudi Arabia as regent since his half-brother, King Fahd, suffered an incapacitating stroke in 1995.
r. President, we are witnessing a financial panic.”
Those were troubling words coming from Ben Bernanke, the mild-mannered chairman of the Federal Reserve, who was seated across from me in the Roosevelt Room. Over the previous two weeks, the government had seized Fannie Mae and Freddie Mac, two giant housing entities. Lehman Brothers had filed the largest bankruptcy in American history. Merrill Lynch had been sold under duress. The Fed had granted an $85 billion loan to save AIG. Now Wachovia and Washington Mutual were teetering on the brink of collapse.
With so much turbulence in financial institutions, credit markets had seized up. Consumers couldn’t get loans for homes or cars. Small businesses couldn’t borrow to finance their operations. The stock market had taken its steepest plunge since the first day of trading after 9/11.
As we sat beneath the oil painting of Teddy Roosevelt charging on horseback, we all knew America was facing its most dire economic challenge in decades.
I turned to the Rough Rider of my financial team, Secretary of the Treasury Hank Paulson, a natural leader with decades of experience in international finance.
“The situation is extraordinarily serious,” Hank said. He and the team briefed me on three measures to stem the crisis. First, the Treasury would guarantee all $3.5 trillion in money market mutual funds, which were facing depositor runs. Second, the Fed would launch a program to unfreeze the market for commercial paper, a key source of financing for businesses across the country. Third, the Securities and Exchange Commission would issue a rule temporarily preventing the short-selling of financial stocks. “These are dramatic steps,” Hank said, “but America’s financial system is at stake.”
He outlined an even bolder proposal. “We need broad authority to buy mortgage-backed securities,” he said. Those complex financial assets had lost value when the housing bubble burst, imperiling the balance sheets of financial firms around the world. Hank recommended that we ask Congress for hundreds of billions to buy up these toxic assets and restore confidence in the banking system.
“Is this the worst crisis since the Great Depression?” I asked.
“Yes,” Ben replied. “In terms of the financial system, we have not seen anything like this since the 1930s, and it could get worse.”
His answer clarified the decision I faced: Did I want to be the president overseeing an economic calamity that could be worse than the Great Depression?
I was furious the situation had reached this point. A relatively small group of people—many on Wall Street, some not—had gambled that the housing market would keep booming forever. It didn’t. In a normal environment, the free market would render its judgment and they could fail. I would have been happy to let them do so.
But this was not a normal environment. The market had ceased to function. And as Ben had explained, the consequences of inaction would be catastrophic. As unfair as it was to use the American people’s money to prevent a collapse for which they weren’t responsible, it would be even more unfair to do nothing and leave them to suffer the consequences.
“Get to work,” I said, approving Hank’s plan in full. “We are going to solve this.”
I adjourned the meeting and walked across the hallway to the Oval Office. Josh Bolten, Counselor Ed Gillespie, and Dana Perino, my talented and effective press secretary, followed me in. Ben’s historical comparison was still echoing in my mind.
“If we’re really looking at another Great Depression,” I said, “you can be damn sure I’m going to be Roosevelt, not Hoover.”
Almost exactly twenty-five years earlier, in October 1983, I was drinking coffee in Midland with a Harvard Business School friend, Tom Kaneb. We heard someone mention that a line was forming outside the doors of Midland’s First National Bank. First National was Texas’s largest independent bank. It had been a fixture in Midland for ninety-three years.
Recently, rumors had been flying about the bank’s precarious financial position. First National had issued many of its loans when oil prices were rising. Then in the early 1980s, the price of crude dropped from almost forty dollars per barrel to under thirty dollars. The pace of drilling slowed. Loans defaulted. Depositors withdrew their cash. I transferred our exploration company’s account to a big New York bank. I was not going to gamble on First National’s solvency.
Tom and I hustled over to the bank. From the second-floor balcony, we watched people line up in the lobby to approach the tellers’ windows. Some carried paper sacks. Amid the crowd was a prominent old rancher, Frank Cowden. Like other West Texas ranchers, Mr. Cowden was fortunate that his land overlay a lot of oil. He was a large shareholder of First National. He was working the line, telling people that the federal government insured every deposit up to $100,000. The people just stared back at him. They wanted their money.
On October 14, 1983, the FDIC seized First National and sold it to First Republic in Dallas. The depositors were protected, but the shareholders were wiped out and a Midland institution was gone. Mayor Thane Atkins spoke for a lot of folks when he said, “I feel like hanging a black wreath on my door.”
I had read about the financial panics of 1893 and 1929. Now I had witnessed firsthand the bursting of a speculative bubble. First National, like all financial institutions, depended on the confidence of its customers. Once that confidence was lost, the bank had no chance to survive.
Sixteen years later, I was running for president. By nearly all measures, the economy was booming. America’s GDP had increased by more than $2.5 tri
llion since the recession that had cost Dad the election but ended before he left office. Fueled by new Internet stocks, the NASDAQ index had shot up from under 500 to over 4,000. Some economists argued that the Internet era had redefined the business cycle.
I wasn’t so sure. “Sometimes economists are wrong,” I said in a speech outlining my economic policy in December 1999. “I can remember recoveries that were supposed to end, but didn’t, and recessions that weren’t supposed to happen, but did. I hope for continued growth—but it is not guaranteed. A president must work for the best case, and prepare for the worst.”
The centerpiece of my plan was an across-the-board tax cut. I believed government was taking too much of the people’s money. By the end of 1999, taxes accounted for a higher percentage of GDP than they had at any point since World War II. The government was supposedly running a large surplus. I knew where that money would go: Government would find a way to spend it. After all, Congress and President Clinton had agreed to increase nonsecurity discretionary spending by more than 16 percent in fiscal year 2001.
I had another reason for supporting tax cuts. I worried that we could be witnessing another bubble, this one in the technology sector. Larry Lindsey, my top economic adviser, believed the country was headed for a recession. If he was right, the tax cuts would act as a vital stimulus.
Sure enough, a recession officially began in March 2001. The New York Times considered the downturn a positive development for me. One article ran under the headline “For the President, a Perfect Time for a Recession.” It sure didn’t feel that way to me. I couldn’t help but note a strange irony of history. In 1993, Dad had left behind an economy much better than the public realized. Now I had inherited one much worse.
With the economy tanking, the tax cuts took on a new urgency. I pressed Congress to move quickly. In June 2001, I signed a $1.35 trillion tax cut, the largest since the one Ronald Reagan signed during his first term. The bill reduced marginal tax rates for every income taxpayer, including millions of small business owners;* doubled the child tax credit from $500 to $1,000; reduced the marriage penalty; and eliminated the lowest tax bracket, which removed five million low-income families from the tax rolls. The bill also phased out the death tax, a burden that was unfair to small business owners, farmers, and ranchers. I figured Americans had paid enough taxes while they were living; they shouldn’t be taxed again when they died.
Signing the 2001 tax relief bill. White House/Paul Morse
I was optimistic that consumers and small businesses would spend their tax relief to help pull the economy out of the recession. But we were in for another massive economic hit that no one expected.
The toll of 9/11 will always be measured by the 2,973 lives stolen and many others devastated. But the economic cost was shattering as well. The New York Stock Exchange shut down for four days, the longest suspension of trading since the Great Depression. When the markets reopened, the Dow Jones plunged 684 points, the biggest single-day drop in history—to that point.
The impact of the attacks rippled throughout the economy. Tourism plummeted. Several airlines filed for bankruptcy. Many restaurants sat virtually empty. Some hotels reported business being down as much as 90 percent. Manufacturers and small businesses laid off workers as skittish buyers canceled their orders. By the end of the year, more than a million Americans had lost their jobs. “The United States and the rest of the world are likely to experience a full-blown recession now,” one economist predicted.
That was what the terrorists intended. “Al Qaeda spent $500,000 on the event,” Osama bin Laden later bragged, “while America … lost—according to the lowest estimate—$500 billion.” He outlined what he called a “bleed-until-bankruptcy” strategy and said, “It is very important to concentrate on hitting the U.S. economy through all possible means.”
I saw it as my responsibility to encourage Americans to defy al Qaeda by keeping the economy moving. In late September 2001, I flew to Chicago’s O’Hare Airport to promote the recovery of the airline industry. I walked onto a riser in front of 737s from American and United Airlines. With six thousand airline workers in the audience, I said, “One of the great goals of this nation’s war is to restore public confidence in the airline industry. It’s to tell the traveling public: Get on board. Do your business around the country.”
Later, I would be mocked and criticized for telling Americans to “go shopping” after 9/11. I never actually used that phrase, but that’s beside the point. In the threat-filled months after 9/11, traveling on airplanes, visiting tourist destinations, and, yes, going shopping, were acts of defiance and patriotism. They helped businesses rebound and hardworking Americans keep their jobs.
I was surprised by critics who suggested I should have asked for more sacrifice after 9/11. I suppose it’s easy for some to forget, but people were making sacrifices. Record numbers of volunteers had stepped forward to help their neighbors. Even our youngest citizens pitched in. Students across the country donated $10 million—often one dollar at a time—to a fund we created to benefit Afghan children. In my 2002 State of the Union address, I launched a new national service initiative, USA Freedom Corps, and called on all Americans to devote four thousand hours to serving others over the course of their lifetimes.
The bravest volunteers were those who risked their lives by joining or reenlisting in the military, FBI, or CIA. Hundreds of thousands made that noble choice in the years after 9/11. Many served multiple tours of duty away from their families. Thousands of our finest citizens gave their lives. To suggest that this country didn’t sacrifice after 9/11 is offensive and wrong.
Short of a military draft—a step I strongly opposed—I’m not sure what more I could have done to encourage sacrifice. This was a different kind of war. We didn’t need riveters or victory gardens like we had during World War II. We needed people to deny the enemy the panic they sought to create.
I’ve always believed that the critics who alleged I wasn’t asking people to sacrifice were really complaining that I hadn’t raised taxes. “Taxes are more than a device to raise revenue,” one Washington Post columnist wrote. “They are a statement of consensus on national purpose.” I reject the premise that higher taxes would have led to stronger national purpose. I am convinced raising taxes after the devastation of 9/11 would have hurt our economy and had the opposite effect.
September 11, 2001, changed American life; it also transformed the federal budget. The projected surplus of early 2001 had been based on bullish forecasts for strong economic growth. The bursting of the tech bubble and subsequent recession significantly lowered those projections. The economic damage caused by the terrorist attacks drove them down even more. Then we faced the essential cost of securing the country and fighting the war on terror. In November 2001, Mitch Daniels, a fiscal hawk from Indiana who ably led my Office of Management and Budget, delivered the official report: The so-called surplus had vanished in ten months.
For years, I listened to politicians from both sides of the aisle allege that I had squandered the massive surplus I inherited. That never made sense. Much of the surplus was an illusion, based on the mistaken assumption that the 1990s boom would continue. Once the recession and 9/11 hit, there was little surplus left.
By the end of 2002, the recession was technically over, but the economy remained sluggish. In early January 2003, I called on Congress to accelerate the tax cuts from 2001, which had not fully taken effect, and to pass further tax cuts that would encourage business investment and job creation.
While the 2001 tax cuts passed with bipartisan majorities—as did a modest tax cut in 2002 focused on small businesses—the 2003 version ran into serious opposition. The left denounced the plan as “tax cuts for the rich.” That charge was false. The Bush tax cuts, when fully implemented, actually increased the portion of the income tax burden that fell on the wealthiest Americans.**
Other critics opposed the tax cuts because they would drive up the deficit. It was true that
tax cuts increase the deficit in the short term. But I believed the tax cuts, especially those on capital gains and dividends, would stimulate economic growth. The tax revenues from that growth, combined with spending restraint, would help lower the deficit.
The tax relief bill made it through the House by a vote of 231 to 200. The tally in the Senate was deadlocked at 50. Dick Cheney went to Capitol Hill to break the tie in his constitutional role as president of the Senate. Fortunately, he voted yes. He joked that he didn’t get to cast many votes as vice president, but when he did he was always on the winning side.
I signed the tax cuts into law in late May 2003. By September, the economy had started adding jobs again. It didn’t stop for 46 consecutive months. After reaching a peak of 6.3 percent in June, the unemployment rate dropped for five of the next six months and averaged 5.3 percent during my presidency, lower than the averages of the 1970s, 1980s, and 1990s. Some argued that the timing of the recovery right after the tax cuts was a coincidence. I don’t think so.
Amid the economic growth, I was mindful that the country was running deficits. I took my responsibility to be a good fiscal steward seriously. So did my four budget directors—Mitch Daniels, Josh Bolten, Rob Portman, and Jim Nussle. As a wartime president, I told them I had two priorities: protecting the homeland and supporting our troops, both in combat and as veterans. Beyond those areas, we submitted budgets that slowed the growth of discretionary spending every year of my presidency. For the last five years, my budgets held this spending growth below the rate of inflation—in real terms, a cut.
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