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The Bush Effect

By Sam Parry
July 3, 2002

Europe’s crumbling faith in U.S. political and financial institutions – starting with the installation of George W. Bush as president after Election 2000 through the latest corporate-accounting scandals – is sending shivers through a U.S. economy that has grown dependent on $1.2 billion a day in capital from overseas. This withdrawal of foreign investment now is threatening to choke off a U.S. economic recovery.

Less than 18 months into Bush's presidency, a nasty mixture of economic and international problems is facing the American people: a sinking dollar and a sagging stock market on one side and soaring budget and trade deficits on the other, with a backdrop of Bush's intent to press ahead with an ill-defined "crusade" to rid the world of "evil" over the advice of traditional allies in Europe and elsewhere.

One might call this predicament – the combination of a depressed economy, an inability to address pressing domestic needs, the alienation of key allies and an endless war – the Bush Effect.   

A key feature in the new economic and political reality has been a stunning reversal in attitudes about the U.S. in Europe and other regions. In the mid-to-late 1990s, a consensus emerged that the world was integrating itself into a common market with the U.S. in the lead, an assessment that propelled the boom in U.S. stocks. In the last half of the decade, the United States was THE place to invest.

From 1995 to early 2001, foreign net purchases of U.S. stock and corporate bonds soared ten-fold, while foreign direct investment jumped six-fold, Business Week reported in its July 8, 2002, edition. The money from Europe and elsewhere financed technology startups as well as high-tech equipment that improved productivity at traditional businesses.

The benchmark Dow Industrial average more than tripled from the end of George H.W. Bush's presidency on Jan. 20, 1993, to the end of Bill Clinton's administration on Jan. 20, 2001 – rising from 3241.95 to 10587.59. Other major indexes, such as the broader S&P 500 and the tech-heavy Nasdaq, registered similar or bigger increases.

Domestic and foreign Investors bid up U.S. stocks with the hope of profiting from the edge U.S. companies had in business enterprises around the world. This Clinton-era prosperity swung the long-running federal budget deficits into surpluses. The U.S.-led technology boom also offered hope that nations could be brought closer together through the growth of the Internet and that the world might have a chance to solve emerging threats, such as global warming.

Downward Spiral

The tarnishing of the U.S. image abroad arguably began with the circus-like impeachment of President Clinton in 1998-99 and worsened with the flame-out of some dot-com high-fliers in 2000. But Bush's theft of the presidential election in December 2000, with Republican partisans on the U.S. Supreme Court stopping the counting of votes in Florida, proved to be a watershed.

Europeans, who viewed the U.S. as the world's leading democracy as well as the top economy, may have been more shocked by the power grab than many Americans were. The U.S. political system suddenly looked like one that could be found in any banana republic.

Though lacking a popular mandate, Bush pushed ahead with his conservative Republican agenda, most notably a $1.3 trillion tax cut weighted heavily toward the rich. Bush’s big-money backers who had grown fabulously wealthy during the Clinton years – the likes of Enron Corp.’s Kenneth Lay – were drooling over a chance to keep even larger shares of their fortunes.

When Bush's tax cut is fully phased in, 51.8 percent of the benefits will go to the wealthiest one percent of Americans, according to a study by Citizens for Tax Justice. []

The tax cut also sent a message to investors that Washington was pulling away from the budget discipline of the 1990s. Meanwhile, Bush offered no new economic ideas, nothing like Al Gore’s commitment to aggressively invest resources and technologies into the development of alternative energy sources and the manufacture of super-high-mileage cars.

Instead of the Clinton-Gore emphasis on new technologies and the environment, Bush’s team was eager to access new sources of fossil fuels, including oil from Alaska and the Caspian Basin, along with more coal from Appalachia. It was back to the future of the 1950s. Bush also sent the world a message that there would be no more Clinton-style “nation-building”and multilateralism. Bush spurned the Kyoto Treaty on global warming and other international agreements.

Competence Questioned

Europeans were aghast at Bush’s go-it-alone foreign policy and retrograde economic plans. Many Europeans regarded Bush as a swaggering buffoon, making ill-informed comments about complex international affairs.

In April 2001, for instance, at a time of heightened tension between the U.S. and China caused by the downing of a U.S. spy plane, Bush was asked in a television interview how far he would go to defend Taiwan from a hypothetical Chinese attack. Bush said he would do “whatever it took to help Taiwan defend herself.”

This statement represented a shift in U.S. policy, which up to then had carefully left the issue of how the U.S. might respond to a Chinese invasion of Taiwan ambivalent. After Bush's comments, the White House issued statements clarifying that Bush hadn't meant what he had seemed to say and that he still supported the longstanding One China Policy.

Other times, Bush’s bewildering remarks might have been funny if uttered by old-time baseball great Yogi Berra, but were unnerving coming from a president of the United States.

"Russia is no longer our enemy and therefore we shouldn't be locked into a Cold War mentality that says we keep the peace by blowing each other up," Bush said during a trip to Des Moines, Iowa, on June 8, 2001. "In my attitude, that's old, that's tired, that's stale."

While visiting the Jefferson Memorial on July 2, 2001, Bush declared, "Well, it's an unimaginable honor to be the president during the Fourth of July of this country. It means what these words say, for starters. The great inalienable rights of our country. We're blessed with such values in America. And I—it's—I'm a proud man to be the nation based upon such wonderful values."

In other strange behavior for a president, Bush poked fun at people's physical appearances. During one August 2001 press conference in Crawford, Texas, for instance, Bush called on a familiar reporter who had covered him as Texas governor. He referred to the reporter as "a fine lad, fine lad," drawing polite chuckles from the press corps.

As the reporter began to ask a question, Bush interrupted with his punch line. "A little short on hair, but a fine lad. Yeah," Bush said. The young reporter paused and acknowledged meekly, "I am losing some hair." [For details, see, Aug. 27, 2001]

A Second Chance

Some of these "Bushisms," as they came to be called, were widely read in Europe, possibly drawing more attention there than in the U.S. One result was plunging confidence in Bush among many of America's closest allies.

The Sept. 11 terror attacks, however, generated broad sympathy among Europeans for the United States. In effect, Europe took a second look at Bush amid hope that he would repair the frayed relations with traditional U.S. allies who also were a key source of investment capital.

Instead, Bush chose to cite Sept. 11 as a justification for greater U.S. freedom of action around the globe. Beyond offending many European and other foreign leaders, Bush projected a future of a world coming apart, not coming together. The prospects for an economically vibrant worldwide common market faded. Many Europeans no longer expected – or wanted – the U.S. to lead the way into the future.

Europeans widely opposed Bush’s unilateral decision to waive the Geneva Conventions in dealing with captured Taliban and al-Qaeda combatants in Afghanistan. Europeans also recoiled at his black-and-white view of the war on terror as Bush announced that he alone would give a thumb up or a thumb down to governments and political movements in the Middle East, Central Asia and elsewhere.

Bush's "axis of evil" speech drew sharp criticism from diplomatic observers around the world. They saw Bush as incapable of grasping nuances and lacking a breadth of knowledge about global hot spots. Even conservative Nebraska Republican Chuck Hagel called Bush's inclusion of Iran as part of the "axis of evil" a blunder that would strengthen extremist clerics and weaken reformers.

While Bush's supporters praised his simplistic messages as “moral clarity,” Bush continued to struggle with intellectual and rhetorical clarity. Repeatedly, he made himself an international laughingstock.

"For a century and a half now, America and Japan have formed one of the great and enduring alliances of modern times," Bush declared in Tokyo on Feb. 18, 2002, apparently overlooking the Second World War in which his father was shot down by the Japanese military. 

"There's nothing more deep than recognizing Israel's right to exist. That's the most deep thought of all," Bush said in Washington on March 13, 2002. "I can't think of anything more deep than that right."

"This foreign policy stuff is a little frustrating," Bush said, as quoted by the New York Daily News, on April 23, 2002. [These quotes come from Bushisms compiled at Slate's Web site at]

After meetings with Bush, foreign leaders offered pointed, though polite, critiques of his competence. “He is the type of person who sleeps at 9:30 p.m. after watching the domestic news,” Saudi Arabia's Crown Prince Abdullah told Okaz, a Saudi newspaper. “In the morning, he only reads a few lines about what is written on the Middle East and the world due to his huge responsibilities.” [The Guardian, May 15, 2002]

Der Spiegel, the German newsmagazine, reported that Bush's ignorance of the world caused an embarrassing episode at a meeting with Brazil's President Fernando Henrique Cardoso. "Do you have blacks, too?" Bush blurted out to the Brazilian leader, Der Spiegel reported.

National Security Adviser Condoleezza Rice, who is black, broke in. "Mr. President, Brazil probably has more blacks that the USA," said Rice. "Some say it's the country with the most blacks outside Africa." [Der Spiegel, May 28, 2002] Cardoso or one of his top aides apparently was the source of the quotes.

Ill-Fated Trip

Europe’s disdain for this un-elected American president crystallized with his trip to the Continent in late May. During that rocky week-long tour of Europe, intended to rally U.S. allies, Bush faltered badly. He said jet lag got the better of him as he struggled to stay alert. He also displayed his thin skin.

Bush bumbled one question about the sensitive issue of Russia’s support for efforts to build a nuclear power plant in Iran. During a joint news conference with Russia’s President Vladimir Putin, Bush announced that Putin had offered Bush “assurances” that “will be very comforting for you (the public) to listen to.”

Immediately contradicting Bush, Putin reaffirmed Russia’s support for Iran’s nuclear power plant.

Bush’s fatigue also showed in testy exchanges with reporters. During a joint press conference with French President Jacques Chirac, Bush lost his cool when NBC correspondent David Gregory followed up a question to Bush in English with a question to Chirac in French.

“Very good, the guy memorizes four words, and he plays like he’s intercontinental,” Bush said in what looked like Bush impersonating Saturday Night Live’s Will Farell impersonating Bush. “I'm impressed – que bueno. Now I'm literate in two languages.” [New York Times, May 28, 2002]

Taken as a whole, Bush's inappropriate behavior – which included winking at reporters in front of a naked statue of the Goddess Venus – gave the impression of a president having trouble keeping focused. [Financial Times, May 29, 2002]

Most establishment reporters in the U.S. portrayed Bush’s stumbles in Europe as quirky gaffes. New York Times columnist Maureen Dowd, for instance, attributed Bush’s poor performance to his proving how “Texas” he is by overdoing “the anti-elitist, anti-intellectual sneer.” [NYT, May 29, 2002]

But the European press was less forgiving. Bush's behavior was described as “clownish.” Published reports examined Bush’s limited intellectual abilities. Europeans also expressed amazement at his high standing in U.S. opinion polls. Throughout the May trip, in scenes reminiscent of Bush’s inaugural parade, average citizens on the streets gave Bush the middle finger as his motorcade passed. In Germany, tens of thousands of protesters turned out with signs telling Bush to go home.

Bush’s insistence on U.S. exceptionalism from international laws governing other nations also infuriated Europeans. While insisting that U.S. adversaries such as former Yugoslav president Slobodan Milosevic be tried for war crimes, the Bush administration demanded a special waiver from the U.N. Security Council to shield U.S. forces from the authority of a new global war-crimes court.

Diplomats also objected to Bush’s new military doctrine of preemptive invasions of countries, such as Iraq, deemed by Bush to threaten U.S. security. “What member states find most irritating is this perennial argument that the United States is a special case, that rules are for everybody else,” one diplomat told the New York Times. “Even close friends are very, very nervous. This is really a serious assault on the international legal order.” [NYT, June 19, 2002]

"In 32 years of reporting on international affairs, I have never seen Britain and the United States more separated from each other: not during the terrible last years of the Vietnam War, not during President Reagan's Iran-Contra dealings or his espousal of the crackpot Star Wars system," wrote correspondent John Simpson. "The way George W. Bush's administration deals with the outside world is affecting even the most traditionally pro-American elements in British society." [London Telegraph, June 30, 2002]

In an article in Foreign Policy entitled "The Eagle Has Crash Landed," Yale senior research scholar Immanuel Wallerstein argued that U.S. power has followed a downward arc since the Vietnam War, but that Bush and his administration have accelerated the rate of decline by depleting U.S. "ideological credit." [Foreign Policy, July/August 2002]

Red Ink

Bush’s stewardship of the federal budget also has undermined confidence in the ability of U.S. institutions to address an economic downturn. Under Bush, the U.S. budget is heading toward its first deficit since 1997, with current projections ranging from $100 billion to more than $150 billion, compared to a $127 billion surplus in fiscal 2001, which ended last Sept. 30. “The $277 billion swing would be the largest on record,” Business Week said in its July 8, 2002, issue.

The cumulative impact of the corporate accounting scandals and the prospects of a world increasingly divided by regional conflicts – combined with doubts about Bush’s competence – have reversed the trend of Europeans and other foreigners investing heavily in U.S. markets. "It's no longer cool to invest in the U.S.," said one European summing up the new attitude toward U.S. stocks.

Over the past year, foreign purchases of U.S. stocks and bonds have dropped 24 percent, with direct investments falling 63 percent, according to Business Week.  “The longer-term problem is that less abundant foreign financing could limit the U.S. expansion,” Business Week said.

Since Bush has been in office, the Dow has dropped 15 percent, the S&P 29 percent and the Nasdaq 51 percent. Reflecting the withdrawal of investments from U.S. stock markets, the dollar has slid 12 percent against the euro since February and fallen against other currencies as well.

“The dollar, after rising sharply in value for years in a reflection of American economic might, is weakening markedly, mirroring concern about the fragility of the economic recovery and the nation’s financial condition,” the New York Times reported.

“We risk seeing a flood of dollar selling as everybody tries to get through the door at the same time,” said Kenneth T. Mayland of Clear View Economics. [NYT, June 21, 2002]

If the Federal Reserve Board tries to shore up the dollar by raising interest rates, the move could undercut the overall economy and damage one of the healthiest sectors, the housing market. Also, since the loss of faith among European investors stems more from disillusionment with U.S. institutions than from Fed policy, a ratcheting-up of interest rates might build little new confidence.

Corporate Crimes

Bush’s belated words of outrage over U.S. corporate-accounting abuses seem unlikely to pull much weight with European investors either, since many view Bush as part of the problem.

Following WorldCom’s admission last week that it used improper accounting to hide $3.9 billion in expenses, Bush termed the chicanery “’outrageous” and vowed, in his usual clunky rhetoric, to “pursue within our laws those who are irresponsible.”

But Bush has little credibility in waving his finger at wayward executives. Through his first year in office, Bush boasted of his corporate-style management and his own record as a corporate executive. For his vice president, Bush recruited Dick Cheney, who was chairman and chief executive of the Houston-based oil-services firm, Halliburton Co.

While at Halliburton, Cheney appeared in a promotional video for the company's accountants, Arthur Andersen LLP. "I get good advice, if you will, from their people based upon how we're doing business and how we're operating – over and above just sort of the normal by-the-books auditing arrangements," Cheney declared. [Wall Street Journal, May 10, 2002]

Halliburton's accounting during Cheney's tenure is now under investigation by the Securities and Exchange Commission. Andersen, which also signed off on Enron's off-the-books partnerships that hid at least $1 billion in losses, was convicted last month of obstructing the SEC's probe of the Houston-based energy trader.

Bush’s lecturing about corporate responsibility also has a do-as-I-say-not-as-I-do quality. Bush's much-touted 10-point accountability plan includes a mandate for corporate officers to disclose their stock sales immediately, rather than under variable timetables as they do now. The purpose of stock-sale reports is to alert shareholders that insiders are unloading shares, which can be a tip-off of trouble at a company.

Yet, when Bush was on the board of Harken Energy Corp. in the late 1980s and early 1990s, he violated federal securities law four times when he was late on four separate occasions filing public reports that he had sold more than $1 million in Harken stock, according to an SEC report prepared in 1991. Bush didn’t miss the deadline by a day or two, but by between 15 and 34 weeks. []

Bush, as a member of Harken's finance committee, had privileged access to information that Harken’s financial prospects were weakening. Bush’s delay allowed his stock sale to go unnoticed before Harken's stock slumped and unsuspecting investors lost money.

In the best light, Bush’s handling of his Harken stock sales was sloppy. Bush’s actions also could be construed as insider trading, though the SEC didn't pursue the case at a time when Bush's father was president. Bush used his Harken profits to become part owner of the Texas Rangers baseball team, a position that established Bush in the public eye and helped launch his bid to become Texas governor.

Ironic Ending

From the Texas governor's mansion to the White House, Bush’s political career was backed by major corporate figures such as Enron’s Kenneth Lay. A grateful Bush gave Lay the nickname, “Kenny Boy,” as well as access to government policy, including private meetings with Cheney's task force drafting the administration's energy policy in 2001.

Like many other corporate chieftains, Lay had profited handsomely from the booming economy in the 1990s, but still looked for less government regulation and lower taxes under a Bush presidency. Ironically, Lay and many other executives have seen their stock portfolios and their personal fortunes deteriorate with Bush in the White House.

For Enron, the drop in its stock price in 2001 transformed complex hedging schemes, tied to Enron stock, into whirlpools that sucked the company into bankruptcy. Lay resigned in disgrace and pled the Fifth Amendment before Congress. He now faces federal investigations into whether he knew about and profited from the accounting gimmicks at Enron.

Though Lay helped put Bush into the White House, the ex-Enron chief certainly does not appear to be better off today than he was two years ago. The same might be said for millions of small investors in the U.S. and elsewhere who have lost trillions of dollars from their pension funds, retirement accounts and personal portfolios.

Everyday, as the news grows bleaker on both the economic and international fronts, it becomes more and more apparent that Bush's shortcomings in intellect, vision and temperament are inextricably bound to the sinking U.S. stock market and the rising world tensions.

As Europeans and other investors continue to bail out of U.S. securities, the pressing question becomes how far down will the Bush Effect drag the overall economy – and how much damage will Bush's unilateralist foreign policy do to U.S. standing among the nations of the world.