President Obama’s latest campaign mantra appears to be that the election of Mitt Romney would take the country “back to the policies of George W. Bush” This is understandable; a recent Gallup poll shows that 68 percent of Americans still believe that George W. Bush is more responsible for the country’s current economic problems than Obama.

There should be no surprise here. The American people are correct in recalling that the financial crisis of 2008, which precipitated a serious recession, occurred at the end of the Bush administration. It was also clearly the result of Bush’s housing policies, which continued and expanded upon the Clinton policies of reducing mortgage underwriting standards in order to boost home ownership.

But other Bush policies—particularly in following Reagan’s pattern for ending a recession—were successful. In this there is a sharp rebuke for Obama and a lesson for Romney.

In historical perspective, Bush’s decision to follow the Clinton housing policies was his fatal mistake. The Clinton administration’s housing policies were built on legislation that Congress adopted in 1992, imposing affordable housing goals on the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

Initially, these goals required that 30 percent of all mortgages Fannie and Freddie purchased be made to borrowers at or below the median income in the communities in which they lived. This was an achievable goal, but the Department of Housing and Urban Development (HUD) was given the power to administer the goals, and during the Clinton administration they were increased to 50 percent, requiring the GSEs to reduce their underwriting standards. By the end of 2000, these policies had built a housing bubble that was already larger than any previous post-war housing bubble.

When Bush came into office in 2001, he had a chance to stop this process, but instead he doubled down. Affordable housing quotas were tightened and enlarged, so that by 2007 they had reached 55 percent. At that point, the US financial system held 28 million subprime or other nonprime mortgage—half of all US mortgages—and 74 percent of these were on the balance sheets of government agencies like the GSEs and the Federal Housing Administration.

When these began to fail in unprecedented numbers in 2007 and 2008, they caused a crash in housing prices, the insolvency of the GSEs, and the weakening of financial institutions in the US and around the world. After Lehman Brothers’ bankruptcy in 2008, a full-scale panic ensued, with banks and other financial institutions hoarding cash and refusing to lend to one another. The Clinton-Bush housing policies had had their inevitable effect.

However, in attempting to revive the economy after the recession of 2001-2002, Bush followed the policies of another of his predecessors—Ronald Reagan—and these proved quite successful. In this case, the lesson for the American people is not so favorable to Obama in his contest with Mitt Romney.

Shortly after George W. Bush assumed office in 2001, a recession began, exacerbated by the collapse of the dot-com bubble and the 911 attacks. The economy contracted in two quarters and unemployment rose to 6 percent in June 2003.  Bush’s solution was to adopt the Reagan recovery pattern—a set of across-the-board personal tax cuts retroactive to the beginning of 2001, followed in 2003 by another series of tax cuts that focused on reducing investment taxes like long term capital gains and accelerating the 2001 cuts.

Although the Bush tax cuts were not very aggressive—the top rate was reduced from 39.6 percent to 33 percent, which left rates higher than when Clinton took office—they stimulated consistent job and salary growth: an average of almost one percent a year in job growth between 2001 and 2007 and almost 1.8 percent growth in real wages and salaries over the same period. Leaving out the recession years of 2001 and 2002, US GDP grew at an average of 2.8 percent between 2003 and 2007.

This compares very favorably with the Obama record in the 36 months between the end of the recession in June 2009 and June 2012.  In that period, when one would expect the fastest GDP growth after a steep recession, the average has been 2.4 percent. In the same period, job growth has averaged .64  percent per year, and real wages and salaries have been stagnant. Not a very good return on an $800 billion stimulus investment.

The Bush record in recovering from a recession through tax cuts is the lesson that Mitt Romney should use in countering Obama’s claim that he would take the country back to the Bush policies.
Romney has already made clear in the Republican debates that he understands Bush’s calamitous error, and that the housing policies of the US government were responsible for the financial crisis. His task now is to show that he has no intention of pursuing those policies. Instead, he will follow the Reagan path—also successful for Bush—in cutting taxes to revive the economy.

Peter J. Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute.