Posted on 07/17/2009 5:02:07 AM PDT by Tolik
Debt Matters
Over the last two decades it became an article of popular faith that budget deficits did not matter that much. Conservatives began to talk of annual red-ink in vague terms of percentages of the gross domestic product rather than in real billions of dollars — as in “Don’t worry about the 2004 shortfall of $605 billion; it’s still only 5.3 percent of GDP.”
Ronald Reagan ran large deficits; so for a while did Bill Clinton. Both Bushes did every year. And Barack Obama, who admittedly came to office amid a liquidity crisis that called for fiscal stimulus, trumped them all with the largest proposed budgetary shortfall in the nation’s history that may hit $2 trillion dollars.
Economists differ on the precise percentages of gross domestic product at which annual deficits began to drag down the economy. They argue over the degree to which mounting national debt is sustainable. And we are not even certain about the exact nature of American borrowing and the resultant pressure on world financial markets and global interest rates. Of course, some borrowing may be needed in times of recession.
Master Charge Nation
But lost in such economic talkfests are the psychological implications of large deficits upon the voters. It may be true that the American people care more about unemployment and inflation than deficits. Or maybe they are not all that concerned about the interconnections between the former and the latter. But in recent years, as budget shortfalls soared, that old wisdom seems less and less compelling.
Consider the political effects of Bill Clinton’s two budget surplus years — and ignore the ongoing argument to what effect they were the result of creative accounting, not sustainable, or any of the other conservatives rationalizations use to deprecate the achievement. The truth is that they were, and are, now accepted as unusual achievements.
Clinton’s Reprieve
So just assume that by hook and crook Clinton balanced the budget and examine the ensuing political fallout (We are talking politics now, not economics).
By the end of his term, the United States was headed into a recession. The president was mired in sexual scandal and had been impeached, and yet his ratings remained overwhelmingly positive. Clearly part of the Clintonian resilience was because Americans not only were relieved that they were not piling up debt on their children, but through modest surpluses were making some progress in paying down the national debt. And they gave Clinton credit (not just the Republican Congress that forced him to stop excessive spending), which trumped his otherwise deplorable behavior.
Privately we all calculate that our own mortgage debts can help on tax obligations given deductions for interest; and perhaps sometimes it is unwise to pay off old low-interest debts in times of inflation. But such rational thinking does not change the fact that Americans hate the debts they run up and feel imprisoned by the reality of owing lots of money. If it is in our evolving national DNA to borrow and spend what we don’t have; we are also equally repelled by what we’ve become.
Spendthrift Republicans Too
George W. Bush pleaded that deficits — and unprecedented large ones at that — were necessary in light of the downturn after 9/11, Katrina, the expense of two wars, and the new programs such as Homeland Security, No Child Left Behind, and the Medicare Prescription Drug benefit entitlement.
Yet what is forgotten is that Bush paid a terrible price for his deficit spending. His unpopularity was not entirely due to Iraq, but finally in large part to the notion that our national debt after eight years of unprecedented borrowing has soared to $11 trillion. He desperately tried to convince Americans that his tax cuts had stimulated the economy (quite true), and had led to greater aggregate revenue than ever before (quite amazingly so).
No matter. Spending increased, especially in the first term, to such levels that it nullified the revenue bonanzas from a growing economy stimulated by tax cuts, and left us larger in debt than ever before. Instead, the entire notion of supply-side economics was unduly discredited, as voters blamed tax cuts, not out of control spending, for the new unsustainable deficits.
They Did It!
Conservatives soon found themselves in the odd position of losing the previous high ground on fiscal sobriety, as big-spending, veto-free Congressional Democrats both welcomed deficits and yet blamed the Republican administration for them — as if childlike, they expected their own undisciplined budgets after 2006 to at least be vetoed by a conservative, more responsible presidential parent.
And if Bill Clinton had survived both Monica and a growing recession on the basis of his balanced budget, George Bush left office tagged with both an unpopular war and record borrowing.
Imagine, however, that Bush had limited federal spending to 2 percent annual increases, and by 2005 was submitting balanced budgets for the rest of his second term. The result would have been faith in the power of revenue enhancing tax cuts, criticism of the war deflected by the nation’s positive balance sheet, and reaffirmation of traditional Republican tight-fisted policies.
“Gorge that Beast!”
Barack Obama should pay particular attention to this morality tale, as his hyper-Keynesian advisors talk casually about a second stimulus, perhaps $9 trillion more in debt to come, and (more quietly) a new “gorge the beast” philosophy of running such record deficits with new spending that higher taxes on the more affluent will be necessary — and with such taxes the long desired equality of result and redistribution of national wealth through a punitive tax code.
Obama can talk endlessly about the “reset” button, the prior “mess”, and “Bush did it”. But as his uncontrollable deficits climb, so too will fall his approval ratings. And just as the voters could not be convinced of the idea of tax cuts leading to greater revenue, so too they will not be persuaded that massive federal spending was worth the additional $9 trillion in debt to come.
We Are the Only Game in Town
Right now various members of the Obama team promiscuously toss out ideas like lifting the income caps on payroll FICA tax, or adjusting the brackets up to nearly 40 percent, or adding a 2-4 percent surcharge on the “wealthy” — all on top of increases recently in state income and sales taxes. Do the math — as are small businesses that are putting off hiring and purchasing in fear that they may well be subject to an aggregate state and federal rate of nearly 70 percent on their income. Obama acts as if business has nowhere else to go, as if the only gate out of the corral for the proverbial lamb leads to the slaughterhouse.
Add in the depression-era rhetoric of ‘”spread the wealth” and “pay your fair share” talk, along with the idea that the new taxes will not even pay down the deficit, which will in fact soar and require both inflation and higher interest to pay it down. The result is a growing anger that higher taxes in this administration somehow still ensure higher deficits. So Clinton gave us high taxes and finally a surplus. Bush at least gave us tax cuts — but a large deficit. Obama gave us the highest taxes in recent memory and the highest deficits in our history. That is not a winning combination.
Balance the budget — and President Obama could, as Clinton, be forgiven for quite a lot. Run up record deficits, and the voters will give him even less empathy than they did George Bush. Just watch …
Just a partial list. Much more at the link: http://www.freerepublic.com/tag/victordavishanson/index
Let me know if you want in or out.
Links: FR Index of his articles: http://www.freerepublic.com/focus/keyword?k=victordavishanson
His website: http://victorhanson.com/
NRO archive: http://www.nationalreview.com/hanson/hanson-archive.asp
Pajamasmedia: http://victordavishanson.pajamasmedia.com/
... Consider the political effects of Bill Clinton’s two budget surplus years — and ignore the ongoing argument to what effect they were the result of creative accounting, not sustainable, or any of the other conservatives rationalizations use to deprecate the achievement. The truth is that they were, and are, now accepted as unusual achievements.
... So just assume that by hook and crook Clinton balanced the budget and examine the ensuing political fallout (We are talking politics now, not economics).
By the end of his term, the United States was headed into a recession. The president was mired in sexual scandal and had been impeached, and yet his ratings remained overwhelmingly positive. Clearly part of the Clintonian resilience was because Americans not only were relieved that they were not piling up debt on their children, but through modest surpluses were making some progress in paying down the national debt. And they gave Clinton credit (not just the Republican Congress that forced him to stop excessive spending), which trumped his otherwise deplorable behavior.
As you can see, Hanson knows the argument that Clinton's balanced budget was not quite so and anyway who was really responsible for it - the Republican Congress. The main point remains - the public in large remembers that as "Clinton balanced the budget". We are talking about perception here that reflects the reality, but not the reality itself. And as we know, in politics perception beats the reality. Especially with the help of our Orwellian Media.
Dr. Hanson is wrong when he says “Bush at least gave us tax cuts — but a large deficit. “
The deficits ballooned after 9/11 to protect the nation. In FY2007, the deficit was down to $250 billion and on a clear multi-year trajectory toward a balanced budget. The Democrat engineered train wreck of the economy (by forcing banks to abandon lending standards so the poorest of the poor could own a home with an ARM) is what destroyed the financial system and led us to the current mess including the $2 TRILLION deficit, 8 times larger than Bush’s last full year in office.
I like Dr. Hanson a lot, but at times his Democrat background continues to seep through his otherwise impeccable logic.
Not true.
The National Debt has not decreased year-to-year since 1957.
On June 30, 1957 the debt was about $2 billion less than it was on June 30, 1956.
Here is the historical record.
There were a couple of years in the late 1990s when the debt "only" went up $20 billion or so, but it's been up continuously every single year since 1957.
There were a couple of years in the late 1990s when the debt "only" went up $20 billion
True. But in the public eye it was as good as balanced budget, especially comparing to what we have now.
2009-2010 budget 3.6 trillion dollars.
I'm not sure how much of the stimulus/tarp shush fund is part of the budget.
New Obamacare plan costs? Wildly low (lying) estimate of 1 trillion dollars over ten years with 587 billion dollars in savings because government is running it. (How can these fark heads lie so boldly?)
Last year we paid about 451 billion dollars in interest on our national debt. With the additional trillion dollar stimulus, trillion dollar deficit in this years budget, we could see interest payments on the debt top 1 trillion dollars per year by the end of Obama's ruination of our countries economy. Especially if interest rates start going nuts and we have to funnel money through Goldman Sachs or the Fed to other countries to make it look like they are still buying up our debt. Remember our tax collections in 2008 were only 2.5 trillion dollars.
57 trillion dollars in UNFUNDED liabilities that our government has promised it's citizens. Not counting city and state pensions that are under funded. The cities and states are depending on taxes to increase each year to fund their pensions.
Remember our tax collections in 2008 were 2.5 trillion dollars.
Is that some scary math or what?
And they say the Obama care is going to cost 100 billion dollars per year? They are f'n lying!!! If we have 50 million uninsured and spending 100 billion to Obamacare them, they are talking about providing medical care for 50 million people at $2,000 per year! I've been trying to track down how many people are getting Medicare and Medicaid to determine how far 682 billion dollars a year goes? Does anyone know? 
CONGRESS writes the budget. CONGRESS passes the budget. The president does NOT have a line item veto. He either passes it or vetoes it. If he vetoes it, CONGRESS stops paying the bills for everything. It just doesn’t work!
There needs to be a constitutional amendment to permit the line item veto.
What exactly is wrong with Congress stopping paying the bills for everything?
I’m not afraid of a “government shutdown”. Shut it down permanently.
Remember when Gingrich tried it from the congress side. It isn’t really possible with the current size of government.
I quit reading right there.
This Keynesian nonsense is the old democrat coming out in Hanson.
You are absolutely right! It won't faze the Hanson worshipers here, however. They see him as a sage philosopher and historian who can do no wrong. Interestingly, Hanson barely uttered a whimper of protest against Bush's big government policies including the bailouts. It seems that he only trots out the free market purple prose when Democrats are in office. His first and foremost concern is spreading Wilsonian Democracy around the world, not fighting big government at home.
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I would like to ban the word 'trillion'. Even billion does not mean much to the average person. Thousandbillion is a much better way to document what is happening - as the CBO graphic does: Total $2,979 B
Or 'trillion-with-twelve-zeros' should become one word whenever money is being discussed.
How did "no child left behind" and medicare drug programs protect the nation. The facts are Bush and his Republican Congress were big spenders.
The American people for the most part are too ignorant of the impact of policy decisions on their lives. It will be years before we have to face the music on what the Democrats have done since 2007 and especially starting this year.
I wish I had your optimism.
What makes me sound like an optimist? We have not seen the effect of government health care, cap and tax or massive deficits yet.
That it will be years before we have to face the music.
It will be.....
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