Deficit growth started under Bush
By Tom Maertens
The Mankato Free Press
Sun Oct 24, 2010
Poll after poll shows that many Americans believe the country is in decline. The current economic recession — which really bordered on a depression — has created pessimism about the country’s prospects, which seems to meld into anger about government debt and spending.
This is a remarkable change from even 10 years ago. During the last six years of Bill Clinton’s presidency, according to Politifact.com, unemployment fell from 6.8 percent to 3.9 percent; personal income grew an average of 7.5 percent per year; and industrial production grew by 5.6 percent per year. More than 22 million jobs were created during Clinton’s two terms.
In 1992, Clinton inherited a federal budget deficit of $290 billion, which he turned into a budget surplus his last four years in office, including a $240 billion surplus his final year. When George W. Bush took office in January 2001, the Congressional Budget Office predicted a $5.6 trillion budget surplus for fiscal years 2002 through 2011.
Clinton’s presidency ended with no ongoing war except enforcement of the Iraq no-fly zones.
In short, that was a period of peace and prosperity.
Contrast that situation to what Bush left to Obama. The United States was fighting two wars which were never paid for, and the country lost more than four million jobs in Bush’s last six months. He left Obama a $1.2 trillion deficit because of a tax code that was skewed toward permanent deficits and Bush’s TARP program which added another $700 billion deficit to Obama’s first budget.
Bush apologists like to cite statistics as if Bush’s “term” ended with FY 2008 (Sept. 30, 2008) because it ignores the $700 billion TARP program signed on Oct. 3, 2008, and therefore charged to Obama, (i.e., in FY 2009) and the 750,000 jobs lost every month during Bush’s last quarter in office.
Of course, no president can control everything that happens to the economy. But the president and Congress control fiscal policy. It was Bush’s decision to seek repeated tax cuts while fighting two wars and passing a Medicare entitlement program, all financed with borrowed money, that led to $5.6 trillion in additional debt. Bush’s Medicare prescription drug program alone, according to the CBO, will cost $1.1 trillion over the next 10 years, and add more to the debt than the combined costs of the Bush’s TARP bailout, the Obama Recovery Act and the health care law. Republican Senator Orrin Hatch, made the astonishing but true statement that during Bush’s presidency “it was standard practice not to pay for things.”
As Nobel economist Joe Stiglitz has written, “The fact that we were running large deficits in the period of our boom was unconscionable.” If you run up the deficit in good times, as the Bush administration did, it leaves little room for maneuver in bad times.
But fiscal irresponsibility continues to be a hallmark of today’s Republican Party. They are advocating extending the Bush tax cuts, at the cost of $4 trillion more in red ink, and propose repealing the health care law, which would actually increase the deficit by more than $100 billion over 10 years, according to the CBO. Deficit hawks or deficit peacocks?
There are times when it is necessary to stimulate the economy and other times when the Fed must rein in price growth, using its control over short-term interest rates. But in hard times, both monetary and fiscal policy must be brought to bear. When Obama took office, the country was facing a deflation cycle potentially as serious as the great depression. As Martin Fackler wrote in the New York Times Oct. 16, deflation “makes individuals and businesses less willing to use money, because the rational way to act when prices are falling is to hold onto cash, which gains in value. It becomes a vicious, self-reinforcing cycle: As prices fall further and jobs disappear, consumers tighten their purse strings even more and companies cut back on spending and delay expansion plans.”
Since the Fed’s discount rate was close to zero, lowering interest rates to stimulate the economy was not possible. The least-bad remaining option was a Keynesian spending and tax-cut program, Obama’s Recovery and Reinvestment Act, to stem the job loss and get more money circulating into the economy. Although many Republican politicians ostensibly favored the Herbert Hoover balanced-budget approach, sure to drive the economy further toward a Japanese-style deflation trap, essentially all mainstream economists recognized what had to be done, despite the bigger deficit it created. The challenge will be to recoup that money when the good times reappear.
The Mankato Free Press
Sun Oct 24, 2010
Poll after poll shows that many Americans believe the country is in decline. The current economic recession — which really bordered on a depression — has created pessimism about the country’s prospects, which seems to meld into anger about government debt and spending.
This is a remarkable change from even 10 years ago. During the last six years of Bill Clinton’s presidency, according to Politifact.com, unemployment fell from 6.8 percent to 3.9 percent; personal income grew an average of 7.5 percent per year; and industrial production grew by 5.6 percent per year. More than 22 million jobs were created during Clinton’s two terms.
In 1992, Clinton inherited a federal budget deficit of $290 billion, which he turned into a budget surplus his last four years in office, including a $240 billion surplus his final year. When George W. Bush took office in January 2001, the Congressional Budget Office predicted a $5.6 trillion budget surplus for fiscal years 2002 through 2011.
Clinton’s presidency ended with no ongoing war except enforcement of the Iraq no-fly zones.
In short, that was a period of peace and prosperity.
Contrast that situation to what Bush left to Obama. The United States was fighting two wars which were never paid for, and the country lost more than four million jobs in Bush’s last six months. He left Obama a $1.2 trillion deficit because of a tax code that was skewed toward permanent deficits and Bush’s TARP program which added another $700 billion deficit to Obama’s first budget.
Bush apologists like to cite statistics as if Bush’s “term” ended with FY 2008 (Sept. 30, 2008) because it ignores the $700 billion TARP program signed on Oct. 3, 2008, and therefore charged to Obama, (i.e., in FY 2009) and the 750,000 jobs lost every month during Bush’s last quarter in office.
Of course, no president can control everything that happens to the economy. But the president and Congress control fiscal policy. It was Bush’s decision to seek repeated tax cuts while fighting two wars and passing a Medicare entitlement program, all financed with borrowed money, that led to $5.6 trillion in additional debt. Bush’s Medicare prescription drug program alone, according to the CBO, will cost $1.1 trillion over the next 10 years, and add more to the debt than the combined costs of the Bush’s TARP bailout, the Obama Recovery Act and the health care law. Republican Senator Orrin Hatch, made the astonishing but true statement that during Bush’s presidency “it was standard practice not to pay for things.”
As Nobel economist Joe Stiglitz has written, “The fact that we were running large deficits in the period of our boom was unconscionable.” If you run up the deficit in good times, as the Bush administration did, it leaves little room for maneuver in bad times.
But fiscal irresponsibility continues to be a hallmark of today’s Republican Party. They are advocating extending the Bush tax cuts, at the cost of $4 trillion more in red ink, and propose repealing the health care law, which would actually increase the deficit by more than $100 billion over 10 years, according to the CBO. Deficit hawks or deficit peacocks?
There are times when it is necessary to stimulate the economy and other times when the Fed must rein in price growth, using its control over short-term interest rates. But in hard times, both monetary and fiscal policy must be brought to bear. When Obama took office, the country was facing a deflation cycle potentially as serious as the great depression. As Martin Fackler wrote in the New York Times Oct. 16, deflation “makes individuals and businesses less willing to use money, because the rational way to act when prices are falling is to hold onto cash, which gains in value. It becomes a vicious, self-reinforcing cycle: As prices fall further and jobs disappear, consumers tighten their purse strings even more and companies cut back on spending and delay expansion plans.”
Since the Fed’s discount rate was close to zero, lowering interest rates to stimulate the economy was not possible. The least-bad remaining option was a Keynesian spending and tax-cut program, Obama’s Recovery and Reinvestment Act, to stem the job loss and get more money circulating into the economy. Although many Republican politicians ostensibly favored the Herbert Hoover balanced-budget approach, sure to drive the economy further toward a Japanese-style deflation trap, essentially all mainstream economists recognized what had to be done, despite the bigger deficit it created. The challenge will be to recoup that money when the good times reappear.
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3 Comments:
I'm and independent voter , and Bush did indeed make horrendous and costly mistakes. He didn't veto anything so we had unchecked spending.
To be fair though, you didn't mention what happened in Kosovo, Sudan, or Somilia and Bill Clintons involvement (Kosovo genocide) or lack of it (Christian Genocide in Sudan ). His was hardly a period of peace, nor was his policy of selective genocide intervention, a noble one.
You also did not mention the fact that for much of his term, he had a Republican Congress. Last I looked, the House of Representatives holds the checkbook, not the president. That does not qualify the $5.6 trillion budget surplus as "his". Also, frankly, I didn't appreciate at all, what my then middle school children learned about marital fidelity or honestly from Clinton. Made my job as a parent much harder.
One other point, the rhetorical attacks against the Republicans, who would "put our Social Security System into the hands of Wall Street"… is a joke. For most of the last century the Democrats have "invested" the Social Security System into the Bond market. Stocks or Bonds… choose your poison, but let the people decide please. Treasury Bonds … really?... what happens to our Social Security System when the Chinese start dumping Treasuries ? I'll invest it myself please… and do better.
Great summary ... but you missed one area of controllable expenses that President Bush also allowed to increase ... and let's use the words of Tom Coburn (R-OK) :
“Not counting the spending for the wars in Iraq and Afghanistan, the “base” Pentagon budget has increased from $407 billion in 2001 to $553 billion for 2011 in inflation-adjusted dollars, according to the newest US defense budget data. Over the past decade, this means a cumulative total increase of almost $1 Trillion for the base DOD budget.”
America is the world's unpaid policeman ... and if there is a war, then more will be spent (unfunded) and America will be involved.
Here's the irony - for years Republicans have been told by the mainstream media that they need to be more like Democrats. So, during the Bush years, they act more like Democrats and run up huge deficits and then Bush is lambasted by Obama for policies that imperil the financial health of the nation and what does Obama go and do - he quadruples the same fiscal policies he railed against the Republicans for!
Now, it is an absolute fact that 'compassionate conservatism' is just a euphamism for Big Government Republicanism. Remember when Bill Clinton wanted Medicare Part D in the late 1990s? But, DeLay and Frist and the Republican Congress were opposed to it under Clinton but in favor of it when Bush wanted it - the very same program!
See, the problem is not who is in charge of budget, but the policies. Bush and the Republicans in the 2000s governed just like Democrats. Since 2006 we have seen what full-throated, unchallenged liberalism is like. When Obama rails against 'the failed policies of the past' I laugh because those failed policies of the past are, for the most part, Democrat policies. Borrow beyond the means, offer tax credits for wanted government behaviors, stimulate the economy (remember, Bush had two stimulus packages) through massive borrowing, bailout private companies, subsidize favored constituencies, bribe the electorate with the public purse to win elections...I could go on. These are all Democrat policies. So, if Republicans enact Democrats policies or Democrats enact Democrat policies, they are still failed Democrat policies.
So, to blame the Bush years for deficit growth is about as useful as blaming FDR for running the first budget deficits in US history.
The trick is twofold. 1) are Americans willing to forego their favored subsidy to restore the financial health of the nation and 2) are policians willing to offer serious reforms aimed at restoring fiscal discipline regardless of the chance of re-election.
I think the answer is no. I think Americans, for the most part, are addicted to government and it is not likely that whatever deficit growth that started under Bush - and exploded under Pelosi, Reid and Obama - is not likely to subside any time soon.
For that reason, it is people like me who are now calling for the nation to simply go bankrupt as soon as possible so we can start anew. All entitlement programs need to be spent down so there is nothing left - no one left to tax and nowhere left to borrow. Is there any point in trying to save what little there is left of fiscal sanity? I don't think so. The nation has been turned in to a giant Ponzi scheme and the sooner the scheme collapses the sooner we can start over...and hopefully learn from the massive mistakes the Republicans and Democrats have saddled us with for the last 10 years.
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