Bush's Fiscal Irresponsibility

Don Luskin has an article in the NRO discussing Paul Krugman's column "Democrats and the Deficit." The article is critical of Krugman's position that Democrats should be careful not to hand budget surpluses to Republicans because they are likely to give them away as tax cuts rather than use them responsibly as down payments on future government liabilities.

As part of his argument, Luskin tries to rebut "Bush’s irresponsibility" by arguing Bush has done as well as Clinton on federal budget issues. For example, he says:

The debt [under Clinton] was 49.3 percent of GDP, higher than in any year of the George W. Bush administration

Well, okay, but let's look a little closer. This is from the link Luskin provides to the OMB's debt to GDP data:

Notice anything about the graph? While it's true that the debt to GDP ratio is lower today than the 1994 value of 49.3%, it's risen steadily under Bush. At the end of fiscal year 2000 the debt to GDP ratio had fallen to 35.1%, and it fell to 33.0% at the end of fiscal year 2001. But since 2001 it has risen steadily. So the important part of the story is not that the debt to GDP ratio is lower now than it was in 1994, instead, it's that the ratio has risen steadily under the Bush administration.

For more perspective, here's all of the data from the OMB (since 1940):

Start in 1980 and see if you can identify Republican and Democratic administrations from movements in the debt to GDP ratio [Answer here - the graph shows both public and inter-agency debt, but the pattern is the same as for just public debt shown above. See if the graph confirms Luskin's claim that Clinton doesn't deserve any credit for deficit reduction because it's the party that controls congress, not the president, that matters. If so, what happened under Bush?].

Looking at the two graphs gives you an idea of why Democrats who worked so hard to get the debt to GDP ratio down during the Clinton years have been so frustrated with this administration's handing it back as tax cuts. Krugman's position is much easier to understand given the debt to GDP ratio's history over the last 25 years of rising whenever Republicans are in the White House. Somehow, that part of the story is missing from Luskin's analysis.

One more note on the figures Luskin cites. Luskin uses a 2.2% figure for the deficit to GDP ratio for the 1990s and compares it to the current ratio of 2.1% as evidence of the Bush administration's success in bringing down the deficit (That .1% fall in the ratio is impressive, don't you think?). Oops. If you limit the average to just the years Clinton was president and throw out the Bush I years, the average falls to 0.8%. So, even with recent improvement in the deficit to GDP ratio from the peak of 3.6%  in 2004 to the current value of 2.1%, it's still more than double the average during the Clinton years. Oh, and by the way, the rest of Luskin's piece, "Speaking Truth to Power," is no better at speaking the truth. If you read it, realize the risk of being misled.

Comments

[ilsm]

The Skeptical Optimist keeps a Debt Clock. It show 65% of GDP and rising.

I guess Luskin is using the US Dbet less any obligations to intragovernmental accounts.

I suppose you only count debt which is owed to the wealthy not obligations to working class and building infrastructure.

But aside from that truthiness TSO views the debt as a revolving charge account never to be paid down, just roll the bonds over so no one pays real money for the government we get.

[anne]

Worrying about the budget deficit, simply plays to Republican meanness in slashing away at domestic social benefit programs. If the deficit is a worry, or even if not, then look to the $14 billion dollars a month spent on the tragic insanity of occupying Iraq, and leave Iraq immediately. There is a saving of $170 billion a year, not to mention the saving of another $8 billion or so by not having to increase the saze of the military.

[evagrius]

When is Uncle Ronnie going to be recognized as the anti-FDR?

It's amazing how much negative affect the Reagan administration has had on the U.S.; from the federal debt to income inequality to oil profligacy to lousy health outcomes to terrible foreign policy, etc;etc;.

I think the Reagan era will be identified as the most significant cause for the decline of the U.S.

[Isabel]

My American Husband checks the news everyday "to make sure that Reagan is still dead". (To be entirely true, in the hopes the same fate has befallen Bush, too)

[ken melvin]

... if they open their mouths: Bush, Luskin, Safire, Brooks, ...

Yes evagrius, 'tis one of the great mysteries. Or, is that myths?

[Cyrille]

How come that, on the link that Luskin provides, the deficit is not 2.1% for either 2006 or 2007, yet it is used as current value. Wouldn't his time series be of a differently calculated deficit than that 2.1% value?

[Ken Houghton]

Safire speaks truth occasionally, but it's limited to his On Language columns and his apologies for having blown so many predictions from the previous year while making the current year's predictions.

[Morgan]

I find Luskin's article not so much misleading as irrelevant.

As a snapshot the current situation looks fine. Unified deficits of 2.1% of GDP are sustainable indefinitely unless nominal GDP growth slows dramatically. In fact, the debt/GDP ratio would probably drop slightly over time if deficits were sustained at that level.

But we know that the unified deficits won't stay that low as a percent of GDP once the Boomers start to retire in large numbers. So what's his point? We get to 2.1% by not funding known future liabilities, so we know that in the future either 1) taxes will rise as a proportion of GDP, or 2) benefits will be reduced relative to expectations, or 3) other government spending will decrease relative to GDP, or 4) the annual deficit/GDP ratio (and hence the debt/GDP ratio) will rise.

I'm not sure we can even inflate our way out of the problem as long as Social Security is wage indexed (causing it to rise roughly in line with nominal GDP) and Medicare benefits increase in line with private insurance (causing their cost to reflect both real and inflationary increases in GDP). Even accellerated real growth might not solve the problem.

Given that the retiree/worker ratio is projected to rise dramatically over the next 25 years, and then stabilize (it doesn't suddenly drop as the Boomers die off), it would be nice if our political class stopped the irrelevant "everything's rosy right now" and pandering "government can be even more generous with taxpayer money" and got busy figuring out what we'll actually do to pay for our future liabilities.

Sorry about the drifting-off-topic screed.

[Howie Copywriter]

I write about real estate and I have a lot of pictures of New York City on my blog. But isn't everything crashing? If you want to see my blogs, they are real crash and real estate crash. Of course, a lot of historical stores and sites are being destroyed in NYC today, too.

[maria]

Was Reagan really the root cause of all our present problems? I can't really buy that idea. George Bush I came after and things were not in such a mess then, and Clinton later whom, I would think, most bloggers would like if not admire. The US seemed quite okay during his 8 years. I think our present mess is due to one person (+ his buddies) and one only, the present Bush II.

[Peter Schaeffer]

Evagrius,

Reagan is responsible for oil profligacy? Check out Total Crude Oil and Petroleum Products. From 1981 to 1988 U.S. oil consumption rose from 5.861 billion barrels to 6.326 billion barrels. A gain of 7.9%. By contrast, under Clinton oil consumption rose from 6.291 billion barrels in 1993 to 7.211 billion barrels in 2000, a gain of 14%.

Note that CO2 output grew by 7.4% under Reagan (1981-1988) and 12.5% under Clinton/Gore (1993 – 2000). Some “inconvenient truths” are more inconvenient than others. See World Carbon Dioxide Emissions from the Consumption and Flaring of Fossil Fuels, 1980-2004

[evagrius]

maria;

"Was Reagan really the root cause of all our present problems?"

Yes and no. Yes in that under Reagan the right-wing ideology of "small" government and large defense budgets, along with a fixation on tax cuts as some type of elixir,and a disregard for environmental concerns as well as poor people, came into being.
No in that Reagan never did anything as remotely stupid as Iraq.

[evagrius]

Peter Schaeffer;

Attitude, attitude. That's the key. Create an attitude that nothing needs to be done. Contrast that with Carter's stated concerns.

Boy, people can get really dense. It really helps to have a good memory. Reagan didn't have one and it seems lots of people share his handicap.

[yan]

It is rather difficult to assess the Reagan administration on some of these points. There are two components to the rising deficits of the Reagan years. The first was increased spending on military buildup as part of the Cold War arms race. In hindsight this policy proved to be effective, although the exact cause of the collapse of the Soviet Union will continue to be the subject of historical debate for decades to come. The second component was the transformation of the tax structure, which combined with the spending increases resulted in annual defecits. However, the tax cuts need to be contextualized in the economic problems that the US was facing in 1981 and from that perspective were not an ineffective stimulus. On the other hand, the new tax structure and further reductions in 1986 are largely responsible for the increasing wealth gap in this country. It is hard to argue that the short term effects of either the defense budget spending or the tax cuts in the face of recession were bad policy but there was no reassessment of policy once the short term problems were dealt with and that has led to some potentially unintended and undesirable results.

With regard to oil profligacy, Reagan inherited the CAFE standards that had been imposed in 1978 and those continued to function throughout his administration, increasing the fuel efficiency of vehicles. There was little active policy during the Reagan years and he can only be blamed for sins of ommission rather than encouraging oil profligacy. Again the economic conditions of the early 80s would have been a hard time to impose further curtailment of energy consumption but when the economy recovered by the mid-80s and the price of oil had dropped in 1986, there may have been an opportunity to retain a a more economizing attitude toward oil. But the decline in fuel efficiency and the rise of the SUV as well as the failure to close the loophole in CAFE standards for those vehicle types were all post-Reagan events.

So from a prgmatic standpoint I don't see how we can blame Reagan for anything other than additional tax cuts in 1986 and the failure to repeal tax cuts that should have served as a temporary economic stimulus. On the ideological front, however, I would agree that Reagan's rationale about the tax cuts and the legacy of voodoo economics that it has fostered in certain political circles has been far more damaging in the long term.

[ken melvin]

Sir Roland of Holyrood was symptomatic of an illness born in the southern regions that spread north. Racism, greed and self-centerednes were now good. The lot that owed so much to progressive policy would have no more of that. "I have got mine to hell with you Jack", they coined. For now, and hence forth, much as in heaven, simple assed solutions would be applied and complexity denied.

[Peter Schaeffer]

Evagrius,

As should be evident, my taste runs towards numbers and facts, not attitudes. By the numbers, Clinton/Gore underperformed Reagan/Bush. Clinton/Gore called themselves environmentalists, Reagan/Bush did not. Yet, energy consumption and CO2 output grew much faster under Clinton/Gore versus Reagan/Bush.

[maria]

Evag:

Well Reagan's defense budgets came before the end of the Cold War and had reasonable arguments behind them. I don't see how "small government" is bad in itself. Would you prefer "big government?" The issue is what that government does, not its size, although I would prefer the government to be as small (and efficient) as feasible while doing what is necessary.

[maria]

I really think much of the anti-Reganism is the result of his rhetoric,---that was right wing for sure. But in practice he was pretty middle of the road, with a slight lean to the right. And I think his popularity was the result of his fitting what America wanted at the time to a T. I think the energy expended in dissing Reagan would be far better employed in dissing Bush II, who deserves all of it and much much more.

[Peter Schaeffer]

Overall, I rate Reagan’s foreign policies as a success. The “evil empire” was both confronted and negotiated with. As others have observed, the role of Reagan in the fall of the Soviet system will be debated forever. However, it would be foolish to ignore the connection.

Reagan’s tax and spending policies were far less successful. The deficit reached a peacetime high of 6% of GDP. As a consequence, the dollar was severely overvalued, triggering massive and unprecedented trade deficits. This is turn led to significant manufacturing and industrial decline in some part of the United States. Wages for workers declined significantly. Inequality rose quite a bit, although the 1986/1987 spike almost certainly reflects tax law changes rather than actual income shifts. Of course, the national debt soared (as a percent of GDP).

Notably, Reagan introduced “comprehensive immigration reform”. Then as now, this meant Amnesty for illegals and phony promises of subsequent immigration enforcement. Of course, Reagan was more honest than Bush about using the “A” word. Bush lies and says he opposes Amnesty while promoting it nonstop.

The contrast with Eisenhower could not be more extreme. Deficits were small and the national debt plunged (as a percent of GDP). America’s foreign trade was essentially balanced. Wages rose substantially (but less than in the 1960s), and inequality declined from already low levels. Eisenhower took a “pro-worker” stand on immigration and deported (or induced to leave) millions of illegals.

Bush is clearly Reagan’s heir in all too many respects. Predictably the economic results have been poor. The trade deficit alone is twice as high (as a percent of GDP) as it was under Reagan. As others have pointed out, the foreign policy outcomes have been worse.

[pgl]

Two comments re Luskin: (1) He says Brad DeLong just wants more spending. That's a flat out lie. Brad has been in the Rubin camp of fiscal conservatism for a long time; (2) Luskin loves to use the unified deficit probably because he knows the general fund deficit is large and is not exactly falling. In short, Luskin did what he always does - flat out lied to the readers of the National Review. But wait - that's what his NRO colleagues usually do.

[evagrius]

The "importance" of Reagan lies in his rhetoric, his "sunny optimism", ( the difference between an optimist and a pessimist is that the pessimist is less disappointed ), and the establishment of a coterie of right-wing ideologues who became more and more influential reaching an apogee with Bush II.
The rhetoric is especially important with regards to long range environmental planning. It was so pervasive and persuasive that not much could be done to alter it.
Also, don't forget that the Middle East situtation at present has many roots originating from his administration.
As for the demise of the Soviet Union, it was predictable, ( and was predicted by Emmanuel Todd among others), from demographics.
Credit must be given to him to not have pressed the situation. If Bush II had been in charge....

[slink]

conventional corn fritter :

IS/LM (non hicks )

"... the debt ..
a revolving charge account never to be paid down...."
implied admonition :

"uncle
never just a net borrower be "
cause u can't
"...just roll the bonds over
so no one pays real money
for the government we get"

and now both party honcho's want to rebalance by 2012

anne:

such croaking half memes as these
limping toward each other
from the two wings of the political main stage
bode ill

such under informed warnings
play solo parts
in the problem u mention

the boxing in of uncle
serves the profit max
minarchs well

[maria]

I still don't find that much fault with Reagan. When you say Bush is his heir you imply that Reagan if he had been president after 2000 would have done the same stupid things. That is an unfounded assumption. Reagan's deficits were hardly crippling to the economy that expanded throughout his administrations and only experienced recession with Bush I. And it is quite a stretch to compare Reagan to Eisenhower when they were president in very different times. Reagan came after the economic malaise of the 70s and the oil shocks of 73/4 and 80/81. Eisenhower was president during the post WWII halcyon days of the nation.

[anne]

There is absolutely no need for Democrats to do more than pretend to worry about the deficit, and I do not care whether they even pretend. Elections are never won and lost on balancing budgets.

Remember the Terminator?

What George Bush and Republicans are doing is trying to trap Democrats with this budget balance rubbish. Since there will be no cuts for the insane tragic occupation of Iraq and since the size of the armed forces will be increased significantly, the only cuts in spending that will be possible other than in social benefit programs will be cuts in the broader military budget, and those cuts will be hard to come by in the current climate. Trying to raise taxes will be futile, because the President will not allow for tax increases and besides the effort will be politically damaging for Democrats.

Remember the Terminator?

[anne]

Because there a few nutty Democrats who still do not understand that Arnold Schwarzenneger really really is governor of California, and possibly the most popular Republican around, and California, deficit and all, is still fine, makes no difference at all to me. Democrats needs to strengthen social benefit programs and protect Social Security and Medicare, and push to leave the insanity of Iraq. Worried about deficits? Leave Iraq immediately. Worried about the destructiion in Iraq? Leave.

[Peter Schaeffer]

Maria,

In retrospect, the 1950s were quite successful. However, at the time opinion was different. Jack Kennedy successfully ran against Nixon on the slogan of "getting the country moving again". As mentioned above, wage growth in the 1950s was strong. Under Reagan it was negative in spite of overal growth in GDP, per-capita GDP, and per-worker GDP. Note that the real post-war II boom was actually in the 1960s which surpassed the 50s in many respects.

[anne]

Leave Iraq immediately and keep the armed services at current size, and we can save between $175 and $180 billion this year and since the cost of Iraq has been rising so tragically, so dramatically, who knows how much next year. Heck increase the size of the armed services, just leave Iraq and the budget is no possible worry and we can do what needs doing domestically.

[howard]

Peter, although i understand the terms of reference for your comments, i actually think that we should avoid calling any period in which de facto and de jure segregation obtained "quite successful," and that's before we even get to other social dysfunctionalities of the period.

yes, in retrospect the 1950s were fairly sucessful economically; the modifier is all-important....

[john c. halasz]

maria defends Reagan. LOL!

[ken melvin]

I think that what happens is often beyond control of an administration. Many of the changes that took place during the reagan years would have whoever was president. But, no modern day president did more to harm working people than Ronnie. This ex-union officer acted time and time again against the unions. The illegals working at Swift were consequent of his administration busting the meatpacking unions. These were good paying union jobs held by those who couldn’t make it in school. By the time Ronnie became president he had accepted Ayn Rand as his guru and joined ranks with the right wingers in despising working people. Oh he needed the working class’s votes, for that, he pandered to their ignorance via banal platitudes. Again, the displacement of the work force would have happened, but Ronnie could have cared less. He gave America the homeless and it didn’t bother him one wit. True, most of the operations of government were carried out by Baker, Meese, Deaver, et al without his involvement and lots without his knowledge, but you can’t have it both ways: afore credit must go responsibility.

[Richard]

Actually, I'm somewhat sympathetic to c roast's situation. As was pointed out to me some months ago, living in a dense metro area without a car (as I do) is largely a privilege.

Consider that the price of where one lives is always a function of the risks and benefits of the locale. The neighborhoods devestated in New Orleans were also the poorest neighborhoods - the risk was priced into the location. If current trends continue, the core cities of New York, Los Angeles, San Franciso and Chicago will all be more highly priced than the suburbs surrounding them. And as the price of oil increases, it is the poor and the less well off who will increasingly be paying the price.

I'm certainly opposed to subsidizing sprawl by using block grants to spur development, and I think there's a strong case to be made for subsidizing transportation corridors to develop transportation grids in the long term. But one of the reasons there is not a coherent transportation policy in this country is because the agendas of rural, suburban and urban communities are so disparate, and I'd like to see some efforts made towards a coherent policy that does not out and out alienate rural and suburban communities.

[Alan Reynolds]

Michel Vasquez says, "I think the Reagan era will be identified as the most significant cause for the decline of the U.S."

What decline was that and when did it happen? Is the remark supposed to assert that the performance of the U.S. economy over the past 24 years was worse than it was during those marvelous pre-Reagan years of Nixon, Ford and Carter?

Let's see some numbers to back that up. Opinion without facts is just political theology.

[Peter Schaeffer]

Howard,

Eisenhower desegregated the US military and used troops to enforce integration in Little Rock. As for all-important modifiers… The New Deal did little or nothing to ease Jim Crow. Unless you are willing to condemn Roosevelt and the New Deal, I wouldn’t criticize the 1950s when real progress on segregation was actually made.

[js paine]

"Let's see some numbers to back that up. Opinion without facts is just political theology"
alan reynolds is a marvel
shameless as a reptile

he of secret motto:

facts are meant
to be bent
not broken
and half a fact is often better then a whole one

------------------------
reagan years worse then
nfc years ???

if increased inequality signals "decline"

then u little boy blue made that case yourself

[Morgan]

Increased inequality signals "decline"? Why is that necessarily the case? Should everyone earn, and keep, exactly the same amount, so that any deviation from perfect equality of outcomes is a bad thing? What if inequality is increasing toward fairness, rather than away from it?

Besides, I see no reason to lay increased inequality on Reagan. The Gini index was increasing before Reagan was elected and increased less during the 1980s than the 1990s.

1970: 0.394
1980: 0.403
1990: 0.428
2000: 0.462
2005: 0.469

In my experience, poetry and facts are nearly immiscible.

[evagrius]

Mr. Reynolds is a rather shameless person.

Why is he so enamored of Uncle Ronnie?

Ronnie canonized the reduction of civilization to the mere accumulation of wealth.

His lopsided boyish grin,and his aw shucks, chuckling demeanor covered a very deep nihilistic attitude.

"Political theology"? No, just plain simple theology.

I doubt Mr. Reynolds is aware of such a subject.

[mrrunangun]

If Jimmy Carter had not appointed Paul Volcker to head the Fed, it is unlikely that the prosperity that attended Reagan's terms would have been so robust. It was Volcker's policy program that killed stagflation and set the stage for the 25 years (and counting) of prosperity after the 70s economic woes, but Carter's putative second term was collateral damage. Carter may have seen it coming, but did what was right for the country anyway.

[js paine]

"In my experience, poetry and facts are nearly immiscible"
morgan
like some poetry
that sounds better then its sense

sounds hard nosed and no foolin'
but really it isn't

a selection of facts can contradict a fuller pattern
with great ease and u know it

your 90's is not clinton its clinton plus bush one
typical reagan babbit talk
sly sliders off load your crap on a poor jack ass like bill
btw
check out the final three years of clinton
when we got to a reasonable level of employment
here state side
and
before the corporate investment drought
post bubble pop
----------
its child's play to notice
facts must be re assembled
into something like
their original totality
and then carefully parsed

polemical needs not with standing
anything less is pure sport

who fails to point out

to have any chance of reflecting reality
its best not to start
with your conclusion in hand
and find its vindication
by a cherry picking
and/or by use of a transmog lense

[Howie Copywriter]

On Dec 12th, good old Ambrose Evans-Pritchard of the Daily Telegraph commented on the expectation of the Pound Sterling to plummet. This becomes relevant where the role of the fall of the pound triggering a further catastrophic fall of the dollar is making the rounds this week.

Meanwhile, the oil price is falling. This may be a welcoming sight for motorists around the world, but this will go into the mix, or shall we say the descent into the maelstrom. Hedge funds could take a big beating. They have been betting on big macho man Cheney to hit Iran and start the rise of oil toward $200 a barrel. But, it has been delayed, though not entirely called off. Here’s a little bit of advice to my hedge fund friends. If the Democratic congress nixes the “surge” in Iraq, then oil will continue down. And alot of hedge fund people are going to be hung out to dry, like what happened to the Amaranth Hedge Fund people up in Greenwich Ct. Or the Amaranth people out in the Cayman Islands. You know, the usual arrangement, the onshore and the offshore branches of twin companies. Anyway a real crash is definitely in the mix for hedge fund people nation.
More at real crash