Maybe that "about" saves Megan from total surrealism. But is she actually saying that any president would have cut taxes heavily and also increased domestic spending heavily and added a new (unfunded) crippling healthcare entitlement - as he launched a $3 trillion war on two countries? Is she saying that Al Gore was proposing this in 2000? That any president would have put two open-ended, enormously expensive wars off-budget? Is she also saying that the massive deficits projected under current plans have nothing to do with Medicare D? Or that Bush's lax regulation of the banking industry had no role in the depression that has devastated government finance?
No you cannot blame Bush for the deeper issues of Medicare A-C, or social security, although you could argue that his failure to restrain them before the boomers retired was an act of omission no real fiscal conservative would have countenanced. But really: this faux world-weary, pox-on-both-your-houses excuse-making for one of the most fiscally reckless presidencies in history won't play.
No, I didn't say that any president would have spent on the specific, often stupid things that Bush did. They would have found their own specific, often stupid things to spend on, and maybe, hopefully, even some non-stupid things. Some of those things would have resembled what Bush did: Medicare Part D was coming, and a Democratic package was going to cost more. But more broadly, when the stock market bubble evaporated, the surplus would have gone away regardless of who was president--and so would the political will for high taxes or cutting spending.
But Andrew's post really illustrates why I say no one cares about the budget deficit. What does it matter what he spent the money on? The problem with budget deficits is that they will crowd out private investments, or that they bequeath a legacy of high interest costs and/or principal repayments to future presidents, and the taxpayers they represent. The market does not care whether we spent it on invading Iraq or finding a cure for AIDS, or a flat panel in every home. It will charge us interest, or deprive the private sector of capital, just the same.
Would Andrew let Bush off the hook for the Iraq war spending if he'd raised taxes to pay for it? Would anyone stop complaining about the hundreds of billions we've spent so far?
The budget is just a side show--because it has hard numbers, it seems to lend some sort of "provability" to peoples' prior policy preferences. But the actual provable harm from the Bush budget deficits is small. As I pointed out earlier, net debt has risen very little as a percentage of GDP, net interest has actually fallen in real terms and as a percentage of GDP, and it is demonstrably false that Bush deficits diverted investment capital from the private sector--or at least, if they did, they did us a favor, by keeping the mortgage bubble from getting even bigger than it did.
Now, you can say that Medicare Part D makes it harder for Obama to close the budget deficit. But that's true of every program. Why pick on Medicare Part D? Because Bush enacted it while the budget was in deficit? But Medicare Part D was enacted in 2006, late in Bush's presidency, and until the financial crisis, the deficit was basically closed.
But more to the point, it's not like Obama has evinced any interest in closing the budget deficit. Right, he says he wants to deal with it. Bush said the same thing, and I don't see Andrew or anyone else giving him brownie points for his good intentions (nor should they). Whatever Obama says he wants to do about the budget deficit, what he's doing is making it bigger. And not just this year, when he arguably should be: I give him a total pass on 2009 spending, and am prepared to be convinced on 2010. But Obama is making the deficit bigger in 2011, 2012, 2016, 2018, and beyond.
Of course, a lot of that is due to Medicare and Social Security--not Medicare Part D, but the boring old kinds, enacted by Lyndon B. Johnson and FDR. But I don't think that the main problems with the programs are that both Johnson and Roosevelt enacted those programs while running sizeable budget deficits. The problem is that they are very expensive and their costs are growing just as the taxes that support them start to fall.
Obama has more reason to be mad at Johnson and FDR for bequeathing him intractable legacy costs than at Bush: they will substantially reduce the scope of the things that Obama can do. But I don't expect to hear him explain that he has to run a budget deficit because he inherited a legacy of unsustainable spending by his Democratic predecessors. The fact remains that Bush actually left him very little legacy of permanent spending to be drivng his future deficits. Once we withdraw from Iraq (I assume we can all agree that any president would have invaded Afghanistan), and the tax cuts expire next year, the actual net contribution of everything Bush did to Obama's structural deficits will be well under $100 billion a year of the $1 trillion or so Obama is projected to spend.
Not that I want to get all hysterical about the Obama deficits either. I presume he's planning to deal with them, mostly in ways I don't like. But I'm not going to start claiming that I have scientifically proven, through the awesome power of budget math, that Obama is like the worst president ever: I will hate his health care plans, etc. exactly as much if he raises taxes to pay for them. My worries about his deficits are more prosaic: is he borrowing so much money that we're at risk of a fiscal crisis brought on by excess debt and spiking interest rates, or is he crowding out private investments? These are empirical questions, and it's far too early to have more than hints at the answers. But Obama's deficits, even in 2012 and beyond, are the largest since World War II by any measure. And that's good reason to worry, in a non-hysterical fashion.
I also worry that he's using the deficits to slip through programs that we'd never support if we had to pay up front, his health care plans among them. But that doesn't make him the worst president ever; it makes him, umm, president.
Would Andrew let Bush off the hook for the Iraq war spending if he'd raised taxes to pay for it? Would anyone stop complaining about the hundreds of billions we've spent so far?
I suspect that if Bush had proposed actually paying for the Iraq War while it was underway, rather than later, it probably wouldn't have happened.
I may be taking Keynes out of context a bit, but he made an analogy about stimulating economic activity by burying jars of money and getting people to 'work' by digging them up. The idea being that any government spending is stimulatory, but you can hand out money and then you can actually spend money that makes long-term economic development sense. I think in your philosophical opposition to government spending, you lump all spending into a bucket of equal waste . . .
Seen from that light, a lot of "Bush" spending is a bigger problem than you're giving credit for. The iraq war in the end is just a giant waste of money, billions of dollars for construction of things destroyed as a result of the war. Wages for soliders, contractors working in Iraq instead of at home. Money for bombs and bullets and equipment doing work (if not being destroyed) in Iraq. It
s basically a giant policy of burying money in Iraq that, had it been spent more sensibly, might have driven some economic growth over here.
I don't have anything like the macroeconomic skills to pretend I can put a number on it, but it doesn't seem fair to me to pretend it's nothing.
Medicare Part D is similar - maybe some form of prescription drug legislation was inevitable someday (though surely Bush could had a chance to prevent it during his term had he opposed it) but as enacted, it's a terrible waste of money. Create a big epurchasing program that doesn't have the ability to control its prices? Surely we can agree that a less wasteful program could have been legislated.
That said, Social Security and Medicare need to be fixed and there are obvious ways to do it without eliminating them - I think the blame lies with a dysfunctional Congress. Both Obama and Bush know/knew that Congress will never do anything about it until the fiscal crisis has already begun, so they don't/didn't bother to squander political capital on it.
The Iraq war is just a giant waste of money? How so? We were spending money on a war with Iraq in any case, for a dozen years before the 2003 invasion. Was that too wasted in the same way?
It's certainly true that a portion of the money could have been spent elsewhere, and yet it seems that spending it elsewhere would mean that the debt would be the same, and that we'd still face a not-well-understood threat from Iraq, and so would be spending a sigificant amount of money for an indefinite period of time to contain that threat. You have to build that into your model, don't you?
Creating a big purchasing program and giving it monopsony buying power seems like about the dumbest thing we could do, so I'm sure you're not proposing that.
Umm. . . lets see, we traded hundreds of billions, if not over (a trillion) of dollars to remove one of several nasty dictators in the world and end up with responsibility for the security of that nation for the forseeable future? I don't think any reasonable person would say we'd spend anywhere near that much absent the decision to start a war over it. The money we spend is wasted - what infrastructure it buids replaces what would not have been destroyed absent the war!
I agree with Megan, any president would have taken up something like the Afghan invasion, so I don't blame Bush for the cost, maybe we can quibble over the way it was handled but I can't prove the costs would have been any different.
Are you suggesting we should also start such a war over North Korea? Myanmar? Pakistan and those would be worthwhile economic investments?
Also, don't understand your criticism of Medicare D, you think as enacted, this is the best of programs we could have? Maybe you'd prefer all government programs were no-bid contracts where the vendors dictated the cost to the government, I wouldn't.
Regardless of if the Iraq war was right/wrong or indifferent:
the spending on the war was far more stimulative than anything in the current stimulus plan.
The majority of that money was spend either procuring goods/ equipment, supplies or in the form of combat pay to military personnel (a large income tax free raise over regular pay rates) -
the money may have been spent "on" Iraq -- but the vast majority was disbursed into US hands (corporate or individual) and it flowed immediately back to the US
The Center for Economic Policy Research disagrees with you. http://www.cepr.net/documents/publications/military_spending_2007_05.pdf
plinko -- read the study. the doc says spending is stimulative for years 1-6; becoming a drag after that.
Which is also true of virtually all government stimulus --
Quite possibly, which is one of the reasons that budget deficits are generally bad political economy. But the same is possibly true of national health care; you can't complain about one and not the other.
It's too cute to say that the "market does not care" how the government spends its money. Debt by itself, and its effect on future cash flows and private investment, is not the market's sole concern.
When a company issues debt to finance capital investment, the market makes a judgment on the value of that investment to future (risk adjusted) cash flows. (When the market doesn't have full transparency into a company's plans, it judges past performance and all information it has about stated future plans).
In the same way, the market makes a judgment on the value of government investment in infrastructure, security, and human capital. We can argue whether or not proposed health reforms can actually constrain future expenses (and thus increase capital available to other private endeavors), and whether or not continuous defense spending increases will decrease the risk to those future cash flows, but to argue that how the money is spent is irrelevant to the net economic effect of the direct and indirect financing costs is a real stretch. The right argument is whether or not the government spending will have a greater economic impact than the private investment it displaces.
I'm sure we would agree that the political dialogue is not very sophisticated about these tradeoffs, and you are right to call people on their hypocrisy of politically convenient deficit fighting, but don't make the same mistake on the flip side.
Financing costs are integral to policy choices -- just because politicians use them hyprocritically doesn't make them irrelevant.
Not to repeat my post from earlier, but we continue to miss one of the fundamental differences between Bush/Obama and their predecessors: the debt. Not the deficit, but the accumulation of deficits.
Megan implies it here, referring to the structural issues of Social Security, Medicaid, etc., but even they aren't as worrisome as "service on the debt" is at this point.
Chinese people don't normally laugh at a public official. That is a very "un-Chinese" thing to do. But they laughed at Geithner. We're all seeing how tepid the response has been to the last US bond sale, and the British sales have been worse.
There isn't a perpetual supply of creditors, either at home or abroad.
We appear to have borrowed nearly all of the money there is to borrow, unless we are willing to devalue it.
*That's* what makes Obama's "solution" twice-damned.
I don't disagree when Megan says he and his administration are "just being presidential." Fiscal irresponsibility goes back to Truman, with notable exceptions in Ike and Clinton (arguably).
None of these men were stupid. They all knew that the were playing a game of musical chairs with the US and global economies.
It just so happens that the music is stopping while Obama doesn't have a chair. The question is: is he going to act responsibly, or is he going to throw a temper tantrum and demand that it's his turn to spend foolishly?
Unlike all of the previous presidents mentioned, including JFK (who was also marginally dim), I really don't believe Obama is that bright. And he's certainly not experienced in these things (ex. Anyone have a guess as to when Geithner will name his first lieutenant at Treasury? 2011, perhaps? It's not as if we need any help there...)
Ignorance, inexperience, and a "damn the torpedoes" attitude towards fiscal borrowing in the face of a credit market that has clearly signaled "no mas" is a potentially disastrous combination.
*That's* the issue.
RobM1981, I am interested to know what actions you believe Obama should take "to act responsibly". Cut spending? Increase taxes? I'm sorry, but in the event (the MASSIVE downturn in private sector demand and the correspondingly large--and continuing--increases in unemployment) he is doing exactly as he should. While long-term fiscal responsibility is imperative, worrying the issue of current imbalances and, even, future projections of such at this point misses the very large and more important fact that inaction would have lead to a broader economic collapse with far more serious immediate negative consequences than the current hyperventilation about future deficits and debt now so much in vogue.
The commentary about Obama's intelligence doesn't lend much credence to your argument.
So you grant that there are second level effects from the borrowing. It is a matter of time before they come into effect.
We are already seeing them in the higher interest rates that will hurt the already bleeding housing market.
Now if Obama was so smart, why did he (and his democratic congress) time the spending late in the election cycle, with the potential that the second level effects would occur before the 'stimulus' effect could be seen?
And just a real dumb question. Where has a country, with very high personal debt, almost non existent savings rate, already high government debt, and a chronic trade deficit shown themselves able to borrow and spend themselves out of a fiscal downturn?
Derek
Couldn't have said it better...
Of course there are deleterious effects in the long run. But as I at least implied earlier we need to work on getting to the long run first, in an economic sense and a few months ago that was no sure thing (and I would argue is still no sure thing). The bigger question, given the immediate financial and real-economy crisis, is what are the alternatives to government action here. If you can come up with any that don't involve the collapse of the banking system and the real economy with it I am all ears. A US with a deflationary economy, bankrupt states and massive unemployment is no more tenable than the dire future scenarios laid out here.
Your question isn't dumb so much as premature and doesn't account for the very important fact that the US is THE most important driver of economic activity in the world. We are not just another Argentina where everyone can take their money out and go home (if you don't agree take a look at Japanese and German industrial production of late or business failures and unemployment in the Chinese export sector). Our situation can certainly be compromised in the long run so I won't belabor the point. Our immediate efforts should be directed towards empowering the administration to push through legislation that will bring the banking system under control and shift resources toward more productive use of our collective capital.
I say let's have a real conversation about spending. Shall we start with our "defense" budget.
China is not going to require the US as an indefinite crutch for their export-lead industrialization. Once the emerging Chinese middle class can eat enough of their own output to sustain a major portion of their industrial economy internally, and thus begin shifting some of their labor into a diversified services sector, there is little reason for the US to remain in the driver's seat. Absent any other intervening factor, that could be less than 30 years away.
Meanwhile, the vast scope of deficit spending the Obama administration has either undertaken or is proposing will create enormous debt obligations with a life at least that long, giving investors every incentive to shift elsewhere at their earliest convenience -- possibly even accellerating the very Chinese economic diversification that will eventually knock the US out of the leadership position.
Mouse, I have a question for you. Related, but a bit tangential:
Do you think that the current US industrial practice of building factories in China to capitalize on what is currently cheap labor will backfire? In other words, will Chinese Labor become more expensive before these US investments in labor and capital pay off?
Your thoughts?
(replying to RobM1981)
One impact of building in China as opposed to the US to consider is who will be the consumer. If one company builds a plant in China, a few Chinese workers will become be able to consume products, and the same numbers of folks in the US or Mexico or Canada or France won't be empowered as consumers. If everyone builds their new plant in China, lots more people in China will be able to consume their product; but workers in those other countries won't.
It seems like it's not just the cost of labor that business should consider, but the ability of workers in your desired market to afford your product.
Obviously, in the US, products outpaced consumers, and the difference was made up in credit -- masking the problem for a long time. So you may save money looking for the cheaper labor in the short term while destroying the ability of consumers to support your product in the long.
I remember a documentary I saw on PBS a few years ago, where a woman who used to worked at a clothing factory talked about how everyone began shopping at Wal-Mart when it opened nearby; soon, they were all wearing pants made in China and soon after, they weren't making pants at their local plant when it closed and could now only afford the pants made in China.
According to the new Federal Reserve Flow of Funds data out yesterday, the total credit market debt in the United State alone is $53 trillion. The federal debt held by the public worldwide is just over $7 trillion.
You can worry that the federal government is crowding out private borrowers, but it is silly to say we've borrowed all of the money there is to borrow.
But who needs hard numbers like these when you can just read the minds of the Chinese?
P.S. Truman reduced the debt from almost 100% of GDP to about 70% of GDP over his term. If all our Presidents could be so "fiscally irresponsible" we'd be in great shape.
Yeah, WWII ending had nothing to do with it. I don't credit people for Manna. And of course there's always that nagging question about why he couldn't close the gap a lot more, since we were not longer fighting for our lives...
In any case, you said it yourself: crowding out.
There is always a credit market. There is always money to borrow. I didn't mean to imply that there is an actual finite limit. Argentina and Brazil are both great examples on how easy it is to make all the money you want.
So what are you suggesting? Does Geithner keep running auctions while Bernanke claims he's holding the money supply constant? Or does Geithner, literally, print pieces of paper with more zeros on them? Or does Bernanke reduce the prime into negative numbers and literally pay people to borrow?
What's left, at this point, and what are the outcomes?
Here's what I *know*:
We have poured money into education, but our kids are still less educated than virtually all of their contemporaries. And yet all I hear is politicians and unions screaming for more. Another example of calling for flank speed when the ship has already hit an iceberg.
We have funded Medicaid and insure at least 40M Americans with what can only be termed "the Cadillac of Health Insurance," but not a single politician has recommended that maybe we cut the benefits to a more reasonable level, spread it out to another 20 or 25M Americans, and keep it budget neutral.
Etc.
I'm not hearing anyone in DC call for a single cut or any consequence. All I keep hearing is Obama "imagineering" a future that simple cannot be funded.
So sorry if I literally said that there is a limit.
So which do you prefer: we monetize the debt, or do we allow the Chinese and other lenders drive prime interest rates up past 5%?
The issues that face countries that borrow in foreign currencies (like Brazil and Argentina) are totally different from countries that borrow in their own currency. Brazil and Argentina couldn't monetize their debt. We can. That's a huge differnce.
But, in any case, all this business about the federal government exhausting its borrowing capacity is speculation. We know that there's a huge appetite for super safe debt. That's why people were buying up all of those AAA top tranche CDOs that ended up blowing up. We know that the 10-year note is still well below its historical average yield. We know that Reagan, Bush I, and Bush II all blew up the debt burden without dramatically affeting interest rates. I suppose that it's possible that we're about ready to hit the tipping point, but it seems it's more likely that the interest rate moves we're seeing is just volatility and reversion to the mean. Especially since private sector deleveraging is decreasing the demand for credit.
China has to put all of their savings some place. Now that American households are saving too, they need a place to put it. It's possible everything comes apart, but it's also easy to see how it could carry on without much disruption.
I love it when folks like Andrew complain about Bush's supposed "lax regulation" of the banking industry. Andrew has a blog, and it has archives, so presumably he can point to the times he discussed banking regulation during the Bush years. I'm guessing that he never did, because Andrew doesn't know anything at all about banking regulation. And yet, for some reason, he has enough confidence to assert that the Bush administration's regulation of banks was "lax."
As for the rest of it: we know that any president that Andrew would have supported would have waged wars in Iraq and Afghanistan, because Andrew supported those wars. And we know that every viable presidential contender over the last 3 elections has supported a Medicare prescription drug benefit, and that Andrew has supported two who favored a more expensive benefit than was actually enacted. And we know that the Bush administration favored reforms to Social Security and Medicare that would have, at least on some accounts, reduced the long term structural deficit caused by those programs, and we know that two of the presidential candidates that Andrew supported opposed those efforts. (Maybe someone should hold Andrew accountable?)
Andrew wants to talk about the Bush administration and holding it accountable as if that has some sort of meaning. Of course it does have a meaning--it means focus on Bush and not on Obama. It's a way of distracting from the issues we face, and of excusing the prospective failure of Obama. Which is really all one needs to know: the cheerleaders for Obama expect him to fail, and so are offering excuses in advance.
Jeff Jacoby of the Boston Globe (can I quote someone here?) wrote an awesome article back in September of 2008. I don't know if it can be put any better:
"Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.
The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.
The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.
All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. "Lack of credit history should not be seen as a negative factor," the Fed's guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as "valid income sources" to qualify for a mortgage. Failure to comply could mean a lawsuit."
He continues, but I don't want to quote beyond that. Feel free to Google it, though. The article is as fact-laden as any you'll read.
He also goes on to say what we all know - Bush did very little to stop it. For sure, he put some pressure on Fannie and Freddie to see if they were being "responsible," and Barney & Friends severely rebuffed him. Even so, it was as much CYA as anything else. It's clear that our "leaders" on both sides of the aisle had declared credit, in general, and mortgages in particular to be a Civil Right.
Sorry, but I worked in the real estate securitization business and government arm twisting had very, very little to do with the bad loans the banks ended up making that are causing all the heartache at this point. Banks realized that was far more money to be made disaggregating and selling off risk than there was holding loans on their books as in the boring old days. So they started first with prime assets and worked on down to sub-prime assets as demand grew. Commons sense would dictate tighter underwriting standards by lenders, tougher credit rating criteria by rating agencies and more skepticism on the part of the buy side as they moved down the credit ladder but, in fact, none of that occurred. Standards were extraordinarily lax by the time cracks started to appear. By then the banks had long realized that they could sell a pool of just about anything to the credulous so they funded origination of as much crap as possible, sub-prime included. So no, they didn't just wake up one fine morning and junk long-held standards of creditworthiness. They junked their long-held standards over a relatively short period of ten years in pursuit of higher profits and larger bonus payments, and they did it knowingly. Putting blame for the cracking of the housing market on government programs intended to promote minority home ownership is entirely wrongheaded. The government can very much be blamed though for failing in its financial markets oversight function. Cling to this story all you want but the truth is put to the lie of the idea by looking at credit underwriting standards in the commercial real estate market during the same time period. There again long-held standards of creditworthiness had all but been discarded by the end of the bubble. Rent? We'll use future projections. Vacancy? We'll use market instead of the higher actual. Expenses? We'll give you credit for expense reductions before you make them. Tenant improvement and leasing costs? Ah, we don't need to use the market number, your building is pretty nice. Yup, that looks like a good cash flow number. And now to size the loan using an interest only debt service constant and a 1.0x coverage requirement. Commercial RE market crashes take longer to become apparent because of the structure of the business but make no mistake that a very large number of borrowers out there are struggling mightily as rent decline, tenants fail, vacancies rise and higher debt servicing payments kick in (yes, there was just as much engineering of reckless lending products on the commercial side). Rep. Barney is a convenient straw man for demagogues but that is all he is in this regard.
Rep Barney is anything but straw in this, your other points notwithstanding. His role is, and was, all too real.
But I will disagree with the term "arm-twisting," at least in the 21st Century. The threats of lawsuits were real enough in the 1990's, and there were plenty of real lawsuits.
Once the sharks - aka bankers - realized that there was a "clever" way to give the Feds what they wanted while also building a bubble...
well, what do you expect?
If you worked in the finance industry, does what the banks did surprise you at all?
The trigger was letting the sharks out of their tank, which is what the Feds - and that very much includes Barney - did. That was patently stupid, regardless of the reason given.
Barney's continuing insistence that he was blowing the collision alarm "way back in 2006" is a bald-faced lie. Like all politicians he made sure to speak to both sides of the issue, so he always has an alibi. Talk his cheap, particularly in Congress.
Actions are different, and Barney's never did anything but defend Fannie and Freddie when even a tiny amount of common sense would have told you that the ponzi was collapsing.
Again, he's not the only one - but he is definitely one, and anything but a strawman.
Andrew has an enormous personal investment in Obama and has thrown any semblance of objectivity to the wind. Every time Obama says or does anything, Andrew has to find a way to gush over it. He is still in the infatuation stage of the infatuation - disillusionment cycle. I look forward to the next phase in a year or so.
A minor correction: "Johnson and Roosevelt enacted those programs while running sizeable budget deficits." Not so for LBJ. If you check the records, his deficit in 1965 was 1.4 billion, in 1966 3.7 billion (total,including off-budget items). Ike had run a 12.8 billion deficit in the recession year of 1959. LBJ did run a sizable deficit later, when he refused to pay for the Vietnam War. But in 1965 we were all victims of rosy scenario.
My point was that the programs are causing problems unrelated to the deficit status when they were passed.
U.S. Presidents in the last 60 years who have reduced the national debt burden during their administration:
Truman
Eisenhower
Kennedy
Johnson
Nixon
Carter
Clinton
U.S. Presidents in the last 60 years who have increased the national debt burden during their administration:
Ford
Reagan
Bush I
Bush II
So we're forced to choose between reality and Megan's theory that Presidents will inevitably run up debt. I choose reality. There's a clear pattern of Democratic (and responsible Republican) administrations reducing debt as a share of GDP, and there's every reason to believe that it would have continued under Gore. Because they're tax and spenders. They tax when they spend.
Ummmm, I think you left out a disconfirming data point in there . . .
Perhaps you'd be so good as to educate me.
Obama seems to be planning to run up a great deal of debt . . .
Give me a break. I left out data from the future?
If you think that Obama is going to push through Democratic wishlist items like health care reform without paying for them, I guess I can see how you might think it would be useful to add future projections to historical data. But he's planning on paying for those programs -- just like Democrats have always done -- which is my whole point.
The deficits come primarily from an economic collapse, and from emergency spending to deal with it. Even if it were historical data, I'm not sure how it would be useful in informing us how Gore would have acted in 2001-2008. The fact that Roosevelt ran up huge debts on emergency economic and war spending didn't indicate any Democratic preference for deficit spending during normal peacetime conditions. And the data confirm that. Every Democratic President since has reduced the debt burden. There's every reason to believe Gore would have as well.
Sometimes budget deficits spur growth, Megan. The budget deficits of the 1940's included spending in college education under the GI Bill, perhaps one of the greatest investments of all times. That investment spurred much of the industry the "markets" upon which today's markets are founded.
I can go out tomorrow and spend $10,000 on clothes, dinner, etc. and not have a whole lot to show for it; or I can go out and spend $10,000 on a new roof for my front porch so that my house won't rot. Or I could spend that $10,000 on learning new skills, equipping myself to make another $10,000 or more. Maybe the market doesn't care what I spend that money on, but some spending proves to be a good investment that produces a tangible return; some is just reckless. When it produces a return, it increases our ability to pay off budget deficits.
I've mostly given up on Andrew, but perhaps I should start reading him again, if only for the comic relief. He writes: But is she actually saying that any president would have cut taxes heavily and also increased domestic spending heavily and added a new (unfunded) crippling healthcare entitlement - as he launched a $3 trillion war on two countries? Is she saying that Al Gore was proposing this in 2000?
Well. Where to start? Was George Bush proposing any of "this", besides the tax cuts perhaps, in 2000? Does Andrew not understand the concept of contingency - i.e., that presidents typically face a world and options not of their own choosing? It's likely that Gore's actual presidency would have looked as different from his campaign as Bush's did, given the actual domestic and international crises that arose during the first 30 months of this decade. And, even assuming that Bush was proposing "this" in 2000, why was Andrew shilling for Bush with as much fervor as he eventually demonstrated for Obama eight years later?
For that matter, Gore was proposing some sort of war with Iraq in 2000. So had he won, we probably would have had two wars during his presidency.
Wow, really? Was I asleep in 2000 and missed Gore campaigning on a war with Iraq?
Hey, given that Bush didn't campaign on a war with Iraq and we had one anyway, the idea that Gore was campaigning on one means we can safely assume he wouldn't have, right?
I have no idea what this site's agenda might be, but it does seem to have a fairly thorough compilation of democratic positions before 2003:
http://brianakira.wordpress.com/2008/02/03/clinton-kerry-gore-call-for-war-against-saddams-iraq/
Gore started criticizing Bush's rhetorical stance, but did not disallow the possibility of war with Iraq, about a year after 9/11 and less than a year before the US invasion:
http://www.gwu.edu/~action/2004/gore/gore092302sp.html
The aggressive anti-war tone he assumed later was a matter of political convenience, not his original position.
"The problem with budget deficits is that they will crowd out private investments..."
No chance of that happening anytime in the near future. There is still a global savings glut, and still a very low demand for funds to be used in private investment. With the recession, there is a lot of excess productive capacity in the world and there are relatively few private investments worth making.
The whole point of this deficit spending to to replace the drop off in private investment with an increase in government spending so that the recession slows down and the global economy doesn't implode past the event horizon. So, when you worry about the burden of the deficit on future taxpayers you should counterbalance that concern with the burden on future taxpayers of a deeper and longer recession/depression.
Yes. Yes and yes again. Thank you!
Again, can you show an example where a nation spent themselves out of a recession by borrowing money, a nation where 70% of the economy is service/consumption, where personal debt is extremely high, where savings are almost non existent, already high government debt, and a chronic trade deficit?
I posit that it doesn't work, isn't working and the secondary effects of borrowing are already dampening any potential growth.
We are at the end of a very long monetary and keynesian stimulus. A couple of decades. Government has already borrowed enormous amounts of money to keep the economy going. Interest rates have been abnormally low for a very long time. And we are seeing a situation where decimation would be taken as good news.
How is borrowing and printing money going to help in this situation? That very strategy got us here. Oh I know. We'll borrow and print more money, that should fix it.
Derek
Debt increased every year of the Bush Administration, not just in nominal or inflation-adjusted terms, but as a share of GDP. The idea that, at any point, "the deficit was basically closed" is pure fantasy.
I think you have some terms confused. The deficit is the negative difference between income and expenditure in any given budgetary year. Debt is the accumulated obligation created by borrowing undertaken to fund deficit expenditures. If you have, for example, deficits of 8%, 6%, 4%, and 2% in four successive years, debt will grow every year but the deficit is being reduced each year.
Thanks for the remedial instruction. The deficit is equal to the change in the debt each year. Megan wrote about deficits. I posted about the change in the debt. The terms are synonyms.
The problem was that I didn't know how to define "the deficit was basically closed" but I'm pretty sure that if the debt is growing faster than the economy, that the deficit is not "basically closed."
If the deficit was "basically closed," we would have seen the federal debt decreasing as a share of the economy, just like we've seen with every post-war Democratic President.
Well, the national debt also increased every year of the Clinton Administration. Look it up:
http://www.treasurydirect.gov/NP/BPDLogin?application=np
Even in the later years this holds.
National debt Jan. 1, 1998: 5,495,525,658,807.45
National debt Jan. 20, 2001: 5,727,776,738,304.64
Under Clinton, the debt increased in nominal terms. When you adjust for inflation, it shrunk. When you compare it to the size of the federal budget, it shrunk. When you compare it to the size of the economy as a whole, it shrunk.
Under Bush, the debt also increased in nominal terms. And when you adjust for inflation, it still grew. And when you compare it to the size of the federal budget, it still grew. And when you compare it to the size of the economy as a whole, it still grew. And by all of these measures, it grew every year of his administration.
Colin, you should look at debt as a % of GDP, of course. The numbers you mention reflect an yearly nominal increase of 1.39% . Sounds like paradise.
Actually, in criticizing Obama's stimulus plan, one has to address the effects of not having a stimulus. Obviously, if the economy shrinks a lot, the debt (as measured by what matters, the ability to pay it) goes up.
And, unfortunately, the inherited Bush's debt didn't do much to increase U.S. GDP growth.
Andrew's posts on this topic unfortunately illustrate one of thorniest problems we face discussing public spending, i.e., most broadcasters, writers and bloggers who follow politics do not broadly understand economics and finance. They are rarely trained in these fields, and thus have formed their understanding on politically based economic arguements observed during their careers. Politically based economic arguments are almost always rationalizations. Megan's analysis is sound and on point. Andrew's is, unfortunately, seen through the lens of political leadership and economic reality.
I largely agree with Andrew's positive views of Obama's leadership and his strong critique of the frequent lowlights of the Bush era. However, even those of us who voted for Obama need to clearly understand that he has not been transparent at all about the fact that a choice will need to be made between 1) his spending plans, 2) a new broad based tax, or 3) significant deterioration in the willingness of other to provide credit to the U.S. government. I think he is smart enough to know this and is simply executing his politics (get the spending, then enact a VAT). But the lack of transparency is simply dishonest and I think less of him for it.
I agree that uninformed arguments are a problem, but Megan's economic history in this post is almost completely inaccurate (as noted above, Johnson wasn't running a sizeable budget deficit when he pushed through Medicare, most of our post-war presidents have actually been responsible stewards of the budget, Bush was never close to closing the budget deficit).
Either she's working with a spectacularly bad economic database or her perspective is just as skewed by politics as Andrew's is.
most of our post-war presidents have actually been responsible stewards of the budget
Carter was closing the budget deficit with 14% inflation. I don't call that being a responsible steward of the budget.
Inflation should hit each side of the budget ledger -- driving up revenues and expenditures and increasing any pre-existing deficit or surplus. But Carter kept the budget deficit stable in nominal dollars. After adjusting for 14% inflation, that's a substantial reduction in the deficit.
yet it seems that spending it elsewhere would mean that the debt would be the same, and that we'd still face a not-well-understood threat from Iraq, and so would be spending a sigificant amount of money for an indefinite period of time to contain that threat. You have to build that into your model, don't you?
You're wrong on just about every count. Defense spending increased substantially during the Bush years in absolute terms, and the growth rate in defense spending relative to its 2000 baseline outpaced the growth rate of the budget as a whole.
There's no indication that the money would have been spent somewhere else had it not gone into fighting the war. The Clinton government has surpluses in 2006-8, and a deficit in 2005 that was smaller than anything that Ronald Reagan generated, so we were making some headway toward reducing the debt before Bush got into office.
Containing Iraq was obviously relatively cheap, because we didn't need to spend nearly as much when containment was the policy. So if you can handle the truth, as you claim, then whip out your abacus and understand that the deficit was made considerably larger because of the expense of the war. You can't run the numbers and come away with a different conclusion.
That doesn't change the thorny problem of Social Security, but don't use it to avoid the issues related to the war. We have more than one fiscal problem in the country.
So...you're going to accuse someone of being "wrong on just about every count", and then dig the hole much deeper? What?
First, you cite defense spending increases. Two points -- these are necessary during war, and Afghanistan was effectively not optional; and Gore supported Iraq until it became politically unpopular. (That was the point: Where we would be now with either a Democratic OR Republican presidency occupying the head seat in world affairs of the past eight years.) Also, the Clinton-era coldwar disarmament policies had significantly reduced the scope of US military spending, possibly untenably once 9/11 occurred, so at least some spending increases were inevitable, even if the Iraq war had not occurred.
Second, you cite the Clinton-era surpluses. Go look at a long-term graph of the US economy and note how, toward the end of the 1990s there is a large bubble that exceeds the trend line, collapses going into 2000, then drops off a cliff the day market trading reopened following the 9/11 shutdown. That's where the money was coming from, and that's where it went. The US arguably was not "well on the way" to fiscal soundness anymore than an underwater mortgage holder is well on his way to recovery after winning the lottery, especially if he then gets hit by a bus a couple years later. Yes, there was money available at the end of the 90s and yes, it was put to good use (all hail divided government), but that was an anomalous condition, not the normal state of affairs.
Third, even the policy of containment was being increasingly and openly opposed by both US and international actors, until 9/11 came along and overturned some established wisdom about how one deals with terror -- especially considering that the WTC bombing occurred early in Clinton's presidency, was treated as a law enforcement issue, cold war disarmament continued unabated, and yet 9/11 was planned and executed anyway during the subsequent eight years.
Where were you trying to go with any of those talking points?
"That doesn't change the thorny problem of Social Security...We have more than one fiscal problem in the country."
Yes, agreed.
"Gore supported Iraq until it became politically unpopular."
False.
http://en.wikipedia.org/wiki/Al_Gore
"Beginning in late 2002, Gore began to publicly criticize the Bush administration. In a 23 September 2002 speech given before the Commonwealth Club of California, Gore criticized President George W. Bush and Congress for the rush to war prior to the outbreak of hostilities in Iraq. He compared this decision to the Gulf War (which Gore had voted for) stating, "Back in 1991, I was one of a handful of Democrats in the United States Senate to vote in favor of the resolution endorsing the Persian Gulf War [...] But look at the differences between the resolution that was voted on in 1991 and the one this administration is proposing that the Congress vote on in 2002. The circumstances are really completely different. To review a few of them briefly: in 1991, Iraq had crossed an international border, invaded a neighboring sovereign nation and annexed its territory. Now by contrast in 2002, there has been no such invasion.""
Al Gore criticized the Iraq war *before it started,* in September 23, 2002. It was very, very popular before it started.
Given your shading of the truth on this issue, it strikes me that a retraction is in order, and that you're arguing in bad faith. I will only note that to say that if you want to blame someone for 9/11, you could blame Phil Gramm for stripping out an amendment in the 1996 anti-terrorism bill which would have made it easier to stop terrorists from funnelling money through international banks, or George W. Bush for not following up on the Clinton administration's plan to battle Al-Qaeda:
http://www.avatara.com/operationignore0.html
First, you cite defense spending increases. Two points -- these are necessary during war, and Afghanistan was effectively not optional; and Gore supported Iraq until it became politically unpopular.
You are confusing giving Bush his way (during a period when contradicting any of the administration's demands was confused with being unpatriotic) with the policy that would have been pursued had Gore actually been president. So no, you cannot assume that the foreign policy vis-a-vis Iraq would have been the same.
Go look at a long-term graph of the US economy and note how, toward the end of the 1990s there is a large bubble that exceeds the trend line, collapses going into 2000, then drops off a cliff the day market trading reopened following the 9/11 shutdown.
The loss of tax revenue came from the Bush income tax cuts. During the prior and more drastic Bush 41/ Clinton recession, there were no such cuts and there was no loss of income tax revenue. Bush 41 lost his job for it, but he prevented the deficit hole from getting worse.
Where were you trying to go with any of those talking points?
Just an effort to deter these right-wing exercises in revisionist history. Didn't work, apparently.
As a member of the future generation that will be paying off this debt, it matters a lot to me if the past spending has led to phenomenal growth, which would make the debt very affordable, or if we had very little real growth, in which case the debt would be very, very expensive.
I just can't believe the glaring gaps in her logic sometimes.
I realize that, fifty posts down, this will not be read - but that's twice Megan has repeated the fallacy of 'will crowd out private investments."
I always have difficulty arguing against this, because as Brad DeLong has much more intelligently stated, it's based on a misapplication of the loanable funds model, and doesn't take into account an economy of lacking full employment that desires net-negative interest rates.
It's a huge logical fallacy - saying the government is going to crowd out private investment when there is an excess savings rate is counterfactual. There is no appetite for private investment. That, by the way, is kinda part of the reason the economy has recently careened off a cliff.
And government spending has not reached a ratio where it cancels out the drop in private investment - so we're still at a net-negative level of national investment when you put the two together.
Oh! And P.S. It assumes a closed-national model (no external players) it assumes a confluence of interests (all those private companies offered to fund renovation on government buildings)and it assumes an absolute static period of time (government will borrow those dollars on the same rates, terms, and timelines as every private investor in the country).
Megan-
You say that the political will for high taxes would have ended with the disappearance of the surplus regardless of who was president. Have you forgotten the 2001 tax cut debate? The tax cuts were so large in part because proponents said there was lots of surplus cash, i.e. it was projected surpluses, not the lack thereof, that drove the tax cuts.
As to whether any president would have added to the debt as Bush did, it ignores the available evidence to simply assert that Gore would have spent, or cut taxes, as much as Bush. Gore supported PayGo while Bush and the Republican congress obliterated it. Gore supported paying down the debt to prepare for boomer retirement, Bush made tax cuts the centerpiece of his campaign.
"Excitable boy they all said..."
I'm light on the economics, so I lurk a lot and slog through these comments in the hope of learning something. But I found the following two statements in Megan's post jarring:
Can someone reconcile these for me? Granted, Megan offers an "or" after each mention of crowding out private capital, suggesting that she may not be fully on board that one (some clarification might be nice). If both of those statements are factually true, then the only conclusion I can draw is that Bush's spending was truly wasteful indeed.
Second, @amouseforallseasons. You wrote:
You are really reaching here. Must we rehash the fact that Bush led us into Iraq on a case that was almost entirely fabricated by his own administration? Lots of folks (who REALLY should have known better) supported the Iraq invasion because Bush & Co. were running around threatening mushroom clouds over US cities on 45 minutes notice. Now I won't pretend to know what Gore would have done after 9/11, but are you really suggesting that Gore would have immediately decided to take the opportunity to attack Iraq too, sidelined State and much of the CIA by setting up his own group at the Pentagon to cherry pick and/or invent "intelligence", and then aggressively push the same false case for invasion?
I won't defend him for supporting the Iraq war as he understood it, because even based on the info I had at the time I thought it was a monumentally stupid idea. But unless ex-Vice Presidents are privy to a lot of super secret info unlike the rest of us, it's fairer to assume he was making calculations based on the same bullshit as the rest of us.
Lastly, @Brian:
I'm not sure precisely where you're going with the Excitable Boy quote, but kudos nonetheless. If only Warren Zevon were still around to write songs about this mess, he would be having a field day.
Cheers
How soon we forget(or at least how others would have us forget.) Bush was an oustandingly bad President, certainly the worst in recent memory, quite possibly in the top (or rather, bottom) three of all time.
And cutting Bush some slack by implicitly suggesting that 9/11 would have happened on Gore's watch is part of a piece. Given that an anti-terrorism plan had been drafted by the previous administration - of which, Ahem! - Gore was a part, and given that even Bush was known to have been given information by his own administration about imminent terrorist attacks:
I think it's fairly safe to say that the odds of a successful hijacking and subsequent crash would have been er, somewhat smaller with a Gore administration.
So far, no one arguing that Gore would have been 'just as bad' as Bush has been remotely convincing in laying out a case. I suspect that quite the opposite would have held instead.