Despite—or because of?—continuing bad economic news, President Obama has doubled down on the argument that Mitt Romney and the Republicans will take the country back to “the failed policies that got us into this mess.” His argument is simple: While his policies haven’t (yet) worked, Romney’s (like Bush’s) would be worse.

Obama’s claim that Bush’s policies caused the recession resonates with American voters. Almost four years after George W. Bush left office, polls show the American people continue to blame him—more than Obama—for the recession that created today’s dismal economic conditions. Throughout the fall and in their debates, it’s a sure thing that Obama will continue to argue that Romney is just another George W. Bush.

How can Romney respond? First, the American people are not wrong about the cause of the recession. There is some truth in what Obama is saying. The housing policies pursued first by the Clinton administration and then by the Bush administration were responsible for the financial crisis and the recession that followed. This will be no surprise to Romney and other Republicans, since Romney and virtually all his primary season rivals agreed in their debates that the government’s housing policies were the cause of the financial crisis. And by that they had to mean Bush.

Beginning in the mid-1990s, under the grandiose title “The National Homeownership Strategy: Partners in the American Dream,” the Clinton administration used the “affordable housing goals” that Congress had imposed on Fannie Mae and Freddie Mac to increase the availability of mortgage credit to low-income borrowers. It also loosened the standards under the Community Reinvestment Act to pull insured depository institutions further into the low-income lending program.

At first, 30 percent of all mortgages purchased by Fannie and Freddie had to be loans made to borrowers at or below the median income in the places where they lived, but in 2000 Clinton’s HUD secretary, Andrew Cuomo, increased this quota to 50 percent. When the Bush administration took office in 2001, it had an opportunity to end this program, but it gave HUD a free hand, allowing the agency to raise the affordable housing quota to 55 percent in 2007, and doing nothing to cut back the scope of the Community Reinvestment Act.

In order to meet the growing quota for financing low-income borrowers, Fannie and Freddie had to relax their underwriting standards; that was the whole idea. By 2008, half of all mortgages—28 million loans—were subprime or otherwise low quality; of these, 74 percent were on the books of Fannie and Freddie and other government agencies or government-controlled entities. The funds that the government poured into the low-income housing market through Fannie and Freddie raised homeownership rates from 65 percent in 1995 to 69 percent in 2004, the highest rate ever recorded.

Bush took credit for this, but the huge expansion of subsidized mortgage funds also built the largest housing bubble in U.S. history. When the bubble began to deflate, it became clear why subprime mortgages had always before been a niche business—they defaulted in unprecedented numbers, driving down housing prices nationwide and weakening most major financial institutions. When Lehman Brothers failed in September 2008, a full-scale panic—the financial crisis—ensued.

Romney should not deny Bush’s error. Although Clinton began the process of forcing low mortgage underwriting standards, Bush continued and enhanced it. Instead, Romney should point out that the government should never have been in the housing finance business, and that he will eliminate Fannie and Freddie to restore a functioning housing market—something Obama has failed to do in almost four years.

But—and this is the key point—Romney can also turn the issue back on Obama, pointing out that while Bush clearly erred in his housing policies he pursued the right policies for getting the United States out of a recession, a topic far more relevant to the current election. While Obama chose vast and wasteful Keynsian-style spending—a “stimulus” of close to $800 billion—Bush chose tax cuts in the Reagan mold, just as Romney himself has now proposed.

When Bush entered office in January 2001 the United States was sliding into a recession caused by the dot-com collapse at the end of the Clinton administration. The first Bush tax cuts went into effect in June 2001 and by November 2001—even after the calamity of 9/11—the economy had emerged from recession. Government revenues grew sharply between 2004 and 2007. Between 2001 and 2004, even including the recession period, median household income rose by 1.6 percent. In the three years since the end of the last recession in June 2009—even if we don’t include the losses in household income during the recession itself—median family income under Obama has declined by 5 percent.

Romney can compare Obama’s post-recession record of spending with the effect of tax cuts under three presidents—Bush, Kennedy, and Reagan—by citing the growth in jobs that came from the Kennedy tax cuts in 1964 and, more particularly, the Reagan growth policies from 1981 to 1989. The Kennedy tax cuts produced annual average economic growth of 4 percent during the Johnson administration, but the Reagan era is a particularly apt comparison for Romney. Reagan not only cut taxes as Romney proposes, but also sought to reduce regulation. This provides a sharp contrast with Obama, who pressed for enactment of the Dodd-Frank Act in 2010, with disastrous results for the economy.

Indeed, the 1981 Reagan program of 25 percent across the board tax cuts, intended to go into effect over the succeeding three years, is closest to Romney’s own 20 percent tax cut plan, but it also included a promise to reduce government regulation. After the government-worship that pervaded the Democratic convention, it is useful to recall that Reagan began his administration with this trenchant and arresting remark in his Inaugural Address: “In this present crisis, government is not the solution to our problem; government is the problem.” With this statement, he not only identified government spending and monetary policies as the sources of the grim Carter-era economy, but he also signaled to job creators that the government’s heavy regulatory hand would be lighter; it would not go away, but it would allow more latitude for investment and innovation.

Tax cuts are powerful economic stimulants, as the Kennedy, Reagan, and Bush experiences show, but reducing regulation provides the space in which a private sector—incentivized by tax cuts—can find room to pursue the innovation and risk-taking that ultimately creates jobs. Tax cuts alone will not get the country’s economy moving when it is tied down by the Dodd-Frank Act, the most restrictive regulatory straitjacket since the New Deal. The fact that Romney has proposed to repeal the Dodd-Frank Act once again puts him squarely in the Reagan mold and will be a key to his success as president.

In his convention speech and since, Obama has mocked Republican economics as offering tax cuts as a cure for everything—“Feel a cold coming on? Take two tax cuts, roll back some regulations, and call us in the morning,” he said to laughter at the Democratic convention. The joke, however, is on Obama. Tax cuts might not cure a cold, but Romney can show two tax cuts and rolling back some regulations would be a better remedy for what ails America than Obama’s prescription.

Peter J. Wallison is the Arthur F. Burns fellow in financial policy studies at the American Enterprise Institute.

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