Clinton, Bush and Obama and Budgets

Our political process often highlights the difference between presidential administrations rather than their similarities. I wandered into Bankrupting America, through Cafe Hayek and found a couple of posts on the federal budget that are of interest.  The first, "The Odd Couple: 5 unfortunate similarities between Bush and Obama," gives a backward countdown of the similarities.

5. They love to spend. Bush passed a $3 trillion budget for 2009.  Obama posted a $3.5 trillion budget in 2010.  Bush doubled the debt to almost $6 trillion and Obama’s plans would leave us with an IOU of an additional $8.5 trillion by 2020.

4. They shop at the same stores. Contrary to popular belief, defense and homeland security spending only made up about 40 percent of Bush’s new spending.  He increased spending across most non-defense categories – like education, Medicare, Medicaid, income security and regional development – by four to six times the rate of inflation.  In Obama’s first half year in office, as he demanded a departure from the “investment deficit” years under Bush, these budgets rose another 70 percent or 40 times the rate of inflation.

3. They dabble with stimulants. In 2001 and 2008, Bush spent billions on rebates to stimulate consumer spending.  In 2009, Obama upped the ante with his $862 billion stimulus package.

2. They give sweetheart deals to failing corporations. Obama carried out Bush’s unpopular $700 billion bailout for failing corporations.  Together, the presidents have bailed out over 600 businesses since Spring 2008.

1. They enjoy regulating in their free time. Once again contrary to popular belief, President Bush was the biggest regulator since Richard Nixon.  Under his leadership in 2007, the number of pages of regulation added to the Federal Register reached an all-time high of 78,090  – a 21 percent increase from Bush’s first year.  And spending on regulatory activities rose to $42 billion in 2009 – a 62 percent increase.  Since taking office, Obama has proposed a large and sweeping increase in regulation that many worry could lead to another financial crisis in the future.

The second post, "A quick ode to the relative fiscal restraint of the Clinton years," correctly notes that President Clinton is the odd man out in spending and wishes the former president a speedy recovery from hearth surgery.  I concur. 
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Cruseturner on Democrats and Republicans

My friend and colleague, Ashley Cruseturner, wrote "Are the Two Major Parties Too Lost to Right this Ship?" for insideriowa.com.  I have cut out a lot of good writing to focus on a main point of the article: that neither party is prepared to make tough choices to resolve long term budget deficits caused by unfunded liabilities of Medicare, Social Security and Medicaid.  I wish to offer a hypothesis to explain the dithering.  Politicians are giving voters what they want: unrealistic promises that can't fiscally be kept.  Cruseturner writes. 

...Like the 1850s, the thrilling and astonishingly decisive victory of a handsome dark horse, paradoxically, may mask the structural instability of the Democratic ascendancy.  Under the sweet but delusional spell of sudden and unexpected congressional majorities and control of the White House, Democrats then and now misread their mandate and misjudged the durability of their dominance.  Ironically, the recent meteoric elevation of party fortunes in 2006 and 2008, the euphoric triumph of Barack Obama, and perhaps even a hard-fought reelection win in 2012 by default, may well offer the Democratic Party of today one final and spectacular opportunity to definitively demonstrate the utter bankruptcy of modern liberalism...

The inconvenient truth: the Republicans of 2010 carry the baggage of a failed party bereft of ideas and visionaries—lacking intellectual honesty and the courage to speak classical conservative truth to its own conventional wisdom...

Right now no one in the Republican Party is seriously addressing the tough issues that pose an existential threat to our survival as a nation: the trillions of dollars in debt we currently owe and the tens of trillions in unfunded liabilities looming in our future.  The best the GOP can do is offer a promise to return to the status quo ante Pelosi: the pledge to stay on the road to disaster —but drive at a more moderate speed.

As Cruseturner penned these words, Paul Ryan, the ranking Republican member on the House Budget Committee released his budget plan, "A Roadmap for America's Future" which is a truly bold plan for the future. The proposal, which would among other things fundamentally change social security, Medicare, and Medicaid, was scored by the Congressional Budget Office.  The report from the CBO to Ryan begins with the usual disclaimers about the limitations of long term forecasts and the unsustainable nature of today's budget path but concludes,

Using CBO’s “textbook growth” model, it is not possible to simulate the effects of the alternative fiscal scenario after 2058 because deficits become so large and unsustainable that the model cannot calculate their effects. The Roadmap would put the federal budget on a sustainable path, generating an annual budget surplus of about 5 percent of GDP by 2080. According to CBO’s textbook growth model, which incorporates the assumption that economic output is determined by the number of hours of labor

that workers supply, the size and composition of the capital stock, and the state of technological expertise, real potential gross national product per person would continue to grow over the entire 75-year period (see Figure 4).10 The economy would be considerably stronger under the proposal (as analyzed by CBO) than it would be under the alternative fiscal scenario. Real gross national product per person would be about 70 percent higher in 2058 under the proposal than under the alternative fiscal scenario.

Ryan's provides a graph of projected economic growth per capita under the "Roadmap for American" plan and the status qua.  It appears to be based on the same data as the CBO report and it indeed shows and extreme difference in economic growth.  Other projections show dramatic improvements in the deficit and national debt, and levels of taxation and spending. 



The Ryan plan seems to be the exception that proves Cruseturner's point that nothing useful is being proposed by in Washington.  Democrats are attempting to pin the plan on all Republicans and Republicans have turned their backs on it.  Jake Sherman of Politico writes in "Dems rip into Ryan's roadmap,"

Last Friday, Rep. Paul Ryan looked like President Barack Obama’s new Republican best friend. The president showered praise on everything from his substantive budget proposal to his family during the now-legendary question-and-answer session with House Republicans.

But rather than opening a hopeful new avenue for bipartisanship, the White House and Hill Democrats quickly went to work ripping apart Ryan’s “Roadmap for America’s Future” — which Obama himself said he had read...

Republicans believe the criticism was a setup.

Rep. Devin Nunes (R-Calif.), an ally of Ryan’s and a collaborator on the plan, said the Democrats’ playbook was obvious: Obama elevated Ryan’s plan in order to methodically break him down. Democrats dismantled the road map point by point over the past week, framing it as a radical shift back to George W. Bush economics...

House Republicans sought to put some distance between themselves and Ryan’s plan. It is just one proposal from one member, the House’s top Republican said Thursday.

“We have a lot of members who have spent really a lot of time creatively looking at how [we] solve the nation’s problems,” House Minority Leader John Boehner (R-Ohio) said. “Paul Ryan is [the] ranking member on our Budget Committee, who has done an awful lot of work in putting together his road map. But it’s his.”

Democrats and Republicans are providing unsustainable policies while decrying true reform as costly.  Why?  You must either believe that politicians continually trick voters or that they are providing the policies voters want.  I'll take the latter option, politicians are giving us what we want.   
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New Projections Show Larger Deficits

Roger Runningen and Brian Faler writing for Bloomberg in "Obama Raises ’10 Deficit Outlook 19% to $1.5 Trillion (Update1)," (August 25, 2009) report on budget projections by the White House and the Congressional Budget Office.  Their forecasts have grown gloomier. 

U.S. unemployment will surge to 10 percent this year and the budget deficit will be $1.5 trillion next year, both higher than previous Obama administration forecasts because of a recession that was deeper and longer than expected, White House budget chief Peter Orszag said.

The Office of Management and Budget forecasts that the U.S. economy will shrink 2.8 percent this year, worse than the 1.2 percent contraction the OMB projected in May. For next year, the budget office said the gross domestic product will grow 2.0 percent, less than the 3.2 percent expected in May. By 2011, the economy would be well on its way to recovery, growing at a 3.8 percent annual rate, according to the administration’s mid-year economic review, released this morning.

“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the budget office’s report said. “The long-term deficit outlook remains daunting.”

Separately, the nonpartisan Congressional Budget Office today predicted that the jobless rate would average 10.2 percent next year, gloomier than the White House projection, and forecast the deficit for this year at $1.6 trillion, slightly worse than the White House estimate.

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We Are Out of Money Now

From the Drudge Report, "We're Out of Money," May 24, 2009.

In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: "We are out of money."

C-SPAN host Steve Scully broke from a meek Washington press corps with probing questions for the new president.

SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?

OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.

In one short paragraph, President Obama pronounces that the government is broke, ducks blame and passes the the buck to elected officials over the last several decades.  Does anyone smell a tax increase to fund medical care reform?

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A Less Rosy Budget Projection

Roger Runningen and Hans Nichols of Bloomberg ("Obama Says U.S. Long-Term Debt Load ‘Unsustainable’ (Update2)," May 14, 2009) report that,

President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

Earlier this week, the Obama administration revised its own budget estimates and raised the projected deficit for this year to a record $1.84 trillion, up 5 percent from the February estimate. The revision for the 2010 fiscal year estimated the deficit at $1.26 trillion, up 7.4 percent from the February figure. The White House Office of Management and Budget also projected next year’s budget will end up at $3.59 trillion, compared with the $3.55 trillion it estimated previously.

Two weeks ago, the president proposed $17 billion in budget cuts, with plans to eliminate or reduce 121 federal programs. Republicans ridiculed the amount, saying that it represented one-half of 1 percent of the entire budget. They noted that Obama is seeking an $81 billion increase in other spending.

Constrained by the recession, President Obama must balance the cost of his ambitious reorganization of government priorities with tax revenues on the one hand with the difficulty in cutting existing programs on the other.  As noted in an earlier post, legislators of both parties oppose the proposed $17 billion in budget cuts.  Apparently, all spending is sacred. 
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On Deficit Reduction

(HT Drudge and Cafe Hayek).  President Obama has proposed cutting $17 billion from the $3.6 trillion budget.  That is less than one half of one percent of the proposed budget and one and a half percent of the projected deficit.  As small as the cuts are, Democrats in the House and Senate are vowing to fight the cuts.  Lori Montgomery and Amy Goldstein writing for the Washington Post in "Democrats Assail Obama's Hit List," quote one senator and three congressmen who oppose cuts in their districts. 

Sen. Dianne Feinstein said she is "committed" to keeping a $400 million program that reimburses states for jailing illegal immigrants, a task she called "a total federal responsibility."

Rep. Mike Ross said he would oppose "any cuts" in agriculture subsidies because "farmers and farm families depend on this federal assistance."

And Rep. Maurice D. Hinchey vowed to force the White House to accept delivery of a new presidential helicopter Obama says he doesn't need and doesn't want. The helicopter program, which cost $835 million this year, supports 800 jobs in Hinchey's district. "I do think there's a good chance we can save it," he said.

Reducing the size of the deficit will be extraordinarily difficult, and projections showing cuts are probably optimistic.
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The Economist and Barak Obama

Last fall, the Economist endorsed Barak Obama for president in these words, "America should take a chance and make Barack Obama the next leader of the free world "It's time," The Economist, Print Edition, October 30, 2008.

Last week, the same periodical titled an article about the Obama budget as "Wishful, and dangerous, thinking" (The Economist, March 5, 2009). Much like Clive Crook, who wrote for The Economist at one time, they describe the budget as

...an ambitious and costly expansion of the government’s role in the lives of Americans. Its centrepiece is a big expansion of state-provided health care—for which he has budgeted $634 billion over the next decade while admitting that yet more will be needed. He will fill in the details in coming weeks (see article) while insisting the plan meets several criteria: it must extend insurance to the 15% of Americans who now lack it, it must help slow the growth in costs, and it must be paid for.

Add increased spending on education, energy and other initiatives, and federal expenditures, excluding defence, would rise to a new high of 18% of GDP in the coming decade....

Sadly, these plans are deeply flawed. First, Mr Obama’s budget forecasts that the economy will shrink 1.2% this year then grow by an average of 4% over the following four years. It might if the economy were to follow a conventional path back to full employment. But this is not a conventional recession. The unprecedented damage to household balance sheets could well result in anaemic economic growth for years, significantly undermining the president’s revenue projections. The economic outlook continues to darken and the stockmarket has already tumbled to 12-year lows. Mr Obama may either have to renege on his promise to slash the deficit to 3% of GDP in 2013 from more than 12% now, rein in his spending promises or raise taxes more.

Second, Mr Obama’s scattershot tax increases are a poor substitute for the wholesale reform America’s Byzantine tax code needs.

People who are not economists might believe that The Economist has recanted its support of the new administration. I do not believe that this interpretation is correct. Economists are a critical lot. Criticism should be viewed in relative terms. Until they write about the good old days of the Bush administration, or speak glowingly of an Obama competitor, I believe that their endorsement stands.

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Kudlow On Obama And Taxes

Larry Kudlow in a Money and Politics column for CNBC titled, "Obama Declares War on Investors, Entrepreneurs, Businesses, And More," gives his opinion on the impact of the new Obama administration's budget and rhetoric on investment. He uses overtly political phrases that I would not use, such as "left-wing social vision" and "big-government onslaught, but much of the analysis is reasonable, well thought out, and defendable by economic research. He begins by declaring that the president's budget demonstrates a desire to tax people who are likely to invest, and that this is in conflict with his stated desires to rescue the economy.

Raising the marginal tax rate on successful earners, capital, dividends, and all the private funds is a function of Obama’s left-wing social vision, and a repudiation of his economic-recovery statements. Ditto for his sweeping government-planning-and-spending program, which will wind up raising federal outlays as a share of GDP to at least 30 percent, if not more, over the next 10 years.

Study after study over the past several decades has shown how countries that spend more produce less, while nations that tax less produce more. Obama is doing it wrong on both counts.

Certainly Mr. Obama believes that his policy will help the economy grow, but Kudlow is correct in focusing on individual incentives to invest, and those are weakened by proposals made by the Obama administration. Without citing specific research he does correctly observe that countries with a small government sectors tend to grow faster than those with large government sectors.

Kudlow traces how Obama policy would "tax" the middle-and lower classes.

And as far as middle-class tax cuts are concerned, Obama’s cap-and-trade program will be a huge across-the-board tax increase on blue-collar workers, including unionized workers. Industrial production is plunging, but new carbon taxes will prevent production from ever recovering. While the country wants more fuel and power, cap-and-trade will deliver less.

If the Obama administration is correct, and carbon dioxide emissions will result in huge costs to society, then the cap-and-trade proposal or a Pigovian tax would be logical policies to implement. But even if they are correct, the policy will successfully in drive up the prices of carbon based energy, the cheapest form of energy. Because this policy is not equally implemented world-wide, it will have a small impact on carbon fuel use but a big impact on the competitiveness of our industrial sector.

Finally, Kudlow sees beyond party lines, associating Johnson administration policies with those of the Nixon administration, and Reagan administration with those of the Clinton administration. Powerful economic trends overwhelm party platforms.

Essentially, the Obama economic policies represent a major Democratic party relapse into Great Society social spending and taxing. It is a return to the LBJ/Nixon era, and a move away from the Reagan/Clinton period. House Republicans, fortunately, are 90 days sober, as they are putting up a valiant fight to stop the big-government onslaught and move the GOP back to first principles.

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George W. Bush's Free Market Presidency

I am a free market sort of guy who Joseph Stigltiz might brand a free market fundamentalist. Critics of the Bush administration believe that it was marked by massive deregulation of the economy, laissez faire run amok. Free markets did not run amok. The Bush administration frequently imposed its will on markets rather than let markets allocate resources spontaneously.

Arianna Huffington expresses the typical, but incorrect view that President Bush was an unbridled market enthusiast. Writing for the Huffington Post (Laissez Faire Capitalism Should Be As Dead As Soviet Communism, December 22, 2008) she opines,

It's time to drive the final nail into the coffin of laissez-faire capitalism by treating it like the discredited ideology it inarguably is...

In a comprehensive piece on what led to the mortgage crisis and the subsequent financial meltdown, the New York Times shows how the Bush administration's devotion to unregulated markets was a primary cause of our economy to ruin.

The link to the New York Times article (White House Philosophy Stoked Mortgage Bonfire, December 21, 2008) was in Huffington's article. The substance of the article does not support the view that the Bush administration favored markets. Its premise is that

Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed.

A pro market, laissez faire administration might try to remove government restrictions on building in some parts of the country, but would not vow to "spread the dream of home ownership." That is a decision that individuals make through markets. The authors write that,

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Pushing hard to expand home ownership is not "hands-off." Housing policies that encourage or impose lax lending standards are a type of bad over regulation in which the government's goal to extend home ownership takes presidence over the lender's goal to make a good loan. They then write,

The president also leaned on mortgage brokers and lenders to devise their own innovations. “Corporate America,” he said, “has a responsibility to work to make America a compassionate place.”

And corporate America, eyeing a lucrative market, delivered in ways Mr. Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment.

I would not absolve mortgage brokers of as much guilt as the authors, but to the extent that President Bush "leaned" on mortgage brokers, he was regulating the industry.

Finally, they claimed that President Bush deregulated the banking industry by removing state authority over national banks. They miss the main point. The Bush administration was replacing one set of regulations for another; those that advanced their agenda.

Nick Gillespie, in an oped piece for the Wall Street Journal (Bush Was a Big-Government Disaster, January 24, 2009), exposes the Bush administration's regulator zeal. Please not that Gillespie gives objective measures about government's growth, and does not make unsubstantiated claims. Certainly, one could question his measures and subsequent conclusions, but at least he provides evidence, and the evidence supports his claim.

The most basic Bush numbers are damning. If increases in government spending matter, then Mr. Bush is worse than any president in recent history. During his first four years in office -- a period during which his party controlled Congress -- he added a whopping $345 billion (in constant dollars) to the federal budget. The only other presidential term that comes close? Mr. Bush's second term. As of November 2008, he had added at least an additional $287 billion on top of that (and the months since then will add significantly to the bill). To put that in perspective, consider that the spendthrift LBJ added a mere $223 billion in total additional outlays in his one full term.

If spending under Mr. Bush was a disaster, regulation was even worse. The number of pages in the Federal Registry is a rough proxy for the swollen expanse of the regulatory state. In 2001, some 64,438 pages of regulations were added to it. In 2007, more than 78,000 new pages were added. Worse still, argues the Mercatus Center economist Veronique de Rugy, Mr. Bush is the unparalleled master of "economically significant regulations" that cost the economy more than $100 million a year. Since 2001, he jacked that number by more than 70%. Since June 2008 alone, he introduced more than 100 economically significant regulations.

Laissez faire capitalism may or may not work, but it was not tried during the Bush administration.

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