[Bloomberg] How George Bush, Big Spender, Destroyed Nirvana

weslinder · Feb 11, 2008

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_hassett&sid=azGzPwIGPlR4

Really interesting budget analysis, though I doubt Hassett's guy will pay any attention to them.

How George Bush, Big Spender, Destroyed Nirvana: Kevin Hassett
Commentary by Kevin Hassett

Feb. 11 (Bloomberg) -- If you could go back in time to President George W. Bush's inaugural address and add one economic statement, what would it be? For me, there is an obvious answer.

If Bush had promised in January 2001 that the baseline of government spending that he inherited when he took office would be the cap during his term, then we would have a big budget surplus today. It would have been easy to do. He just had to say: ``I will not spend one penny more than President Bill Clinton planned to. I will veto any bill that tries to.''

I have written before in this space that Bush has outspent Clinton by a mile. With government spending still out of control, the gap between where we are and where a disciplined nation could have been is getting bigger and bigger.

With a recession looming, the policy implications of the spending explosion are serious. If a deep recession occurs, we will have less wiggle room.

To see how different the world could have been, I gathered data from a number of sources and ran an alternative history. In that wishful place, government spending was set equal to the spending envisioned by the Congressional Budget Office in the January 2001 long-run forecast, plus the spending for the war in Iraq and to fight terrorism. This simulation assumes that the war would have happened in spite of Bush's spending promise, and wouldn't have induced him to seek cuts elsewhere.

The difference between that spending path and the one we are on is huge. Today, we expect federal spending in 2008 will be $2.9 trillion. According to the alternative history, spending would be $2.5 trillion.

Surplus Fantasy

With spending at the lower level, we would have a surplus of $152 billion if revenue were equal to what it is currently projected to be.

Running the simulation forward, the gap between revenue gets wider and wider. By 2017, we are scheduled to spend almost $1 trillion more than we would have if we had stuck to the Clinton baseline. With the low spending baseline we would have a surplus in 2017 of $1.1 trillion, instead of the $151 billion surplus that's currently forecast.

Think of it this way. If we now had the lower spending levels that Bush inherited, we could extend his tax cuts, repeal the alternative minimum tax, enact the current stimulus package, and still have a 10-year budget surplus of $1.9 trillion. And, remember, that allows spending to be adjusted up for the Iraq war and the war against terrorists.

Many observers might say this scenario is unrealistic. The 2001 long-run forecast covered both discretionary and mandatory spending. No administration, the argument might go, could have held the line on the growth of Medicare and Social Security spending.

Hold the Line

There are two responses to that.

First, a president could always demand that spending be capped and that discretionary spending be reduced to offset unexpected increases in mandatory outlays. Social Security might be the third rail of American politics, but it might not be. It has been changed before. Why couldn't it be changed again? Families do that all the time. If Johnny needs braces, then you take fewer trips to the restaurant.

The second response is perhaps more powerful. Let's see what happens when we allow mandatory spending to go up as it did. This lets Bush have his prescription-drug benefit, which is now part of mandatory spending.

If we had held the line on everything else that is discretionary, we could have had the prescription-drug plan, the Iraq war and the war against terrorists. We could have kept all the Bush tax cuts, made them permanent, repealed the AMT and added the stimulus package and still ended up with a balanced budget from 2008 to 2017.

Bloated Uncle

It makes you sick to think about it. All that money wasted on ethanol and bridges to nowhere has accumulated into a pile that massive. Uncle Sam ate a whopping helping of apple pie every day for seven years, and now he is obese.

This is important to bear in mind as we move forward to the general election. We don't have a deficit because of Iraq, or the tax cuts, or the drug benefit. We have a deficit because the government grew fat. We can't fix that with tax increases. Uncle Sam must go on a diet.

A simple way to start would be this: Whoever is elected president this November should pledge that he or she won't spend $1 more than we currently plan to. If Bush had done that seven years ago, we would be in a different world.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in his bid for the 2008 presidential nomination. The opinions expressed are his own.)
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pirc1 · Feb 11, 2008

Fiscal Liberal Social Convervative are the worst kind of presidents.

jo mama · Feb 11, 2008

ive said it before and ill say it again...

bush is the biggest fiscal liberal we have ever had as president. he also doubled the size of the federal government.

im amazed that people really still think he is a conservative.

thadeus · Feb 11, 2008

Lots of wealthy people are getting wealthier via the policies of the Bush Administration.... so, what's to complain about?

It's going to trickle down guys! No, really!

weslinder · Feb 11, 2008

thadeus said:

Lots of wealthy people are getting wealthier via the policies of the Bush Administration.... so, what's to complain about?

It's going to trickle down guys! No, really!
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If we kept his policies that "benefit the rich" and got rid of his policies specifically set out to benefit other people than the rich (NCLB, Medicare drug program), everyone would be in better shape.

Rashmon · Feb 11, 2008

weslinder said:

If we kept his policies that "benefit the rich" and got rid of his policies specifically set out to benefit other people than the rich (NCLB, Medicare drug program), everyone would be in better shape.
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"Yeh, that's the ticket."
Jon Lovitz

Rule0001 · Feb 11, 2008

weslinder said:

If we kept his policies that "benefit the rich" and got rid of his policies specifically set out to benefit other people than the rich (NCLB, Medicare drug program), everyone would be in better shape.
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Yea!!!!!

Finally the rich white man's in charge LOLOLOLOLOL -sIMPsONS!!!!JLKDSJFLDSKJSDLKF

SamFisher · Feb 11, 2008

I saw this this AM. This is kind of the same playbook the right wing has had for years - blame the smaller itesm in the budget while ignoring the 8,000 pound gorialla and the single largest expenditure - defense spending - and the single largest portion of that is Iraq.

Hassett is intentionally not really divulging the numbers here. The cost of the war in Iraq is truly staggering compared to any single domestic program, or even all of them combined. The current tally is something like 500 billion (200 something million per day) and that is expected to go up to 1.2 trillion. So for him to state "we don't have a deficit because of Iraq" and then to blame something that costs less (by the way, alot of social spending isn't bridges to nowhere or ethanol subsidies, it's more like roads, homeland security, DOJ, etc) is not very credible to me. The war in Iraq (supposed to cost 50 billion originally - whoops!, only 1000% over budget and counting...) makes a 3-4 billion deficit seem incredibly insignificant in comparison.

underoverup · Feb 11, 2008

thadeus said:

Lots of wealthy people are getting wealthier via the policies of the Bush Administration.... so, what's to complain about?

It's going to trickle down guys! No, really!
Click to expand...

it already has actually..............

Reaganomics Finally Trickles Down To Area Man

Twenty-six years after Ronald Reagan first set his controversial fiscal policies into motion, the deceased president's massive tax cuts for the ultrarich at last trickled all the way down to deliver their bounty, in the form of a $10 bonus, to Hazelwood, MO car-wash attendant Frank Kellener.

"Back when Reagan was in charge, I didn't think much of him," Kellener, 57, said, holding up two five-dollar bills nearly three decades in the making. "But who would have thought that in 2007 I'd have this extra $10 in my pocket? He may not have lived to see it, but I'm sure President Reagan is up in heaven smiling down on me right now."

Leading economists say Kellener's unexpected windfall provides the first irrefutable proof of the effectiveness of Reagan's so-called supply-side economics, and shows that the former president had "incredible, far-reaching foresight."

The $10 began its long journey into Kellener's wallet in 1983, when a beefed-up national defense budget of $210 billion enabled the military to purchase advanced warhead-delivery systems from aerospace manufacturer Lockheed. Buoyed by a multimillion-dollar bonus, then-CEO Martin Lawler bought a house on a 5,000-acre plot in Montana.

When a forest fire destroyed his home in 1986, Lawler took the federal relief check and invested it in a savings and loan run by a Virginia man named Michael Webber. After Webber's firm collapsed in 1989, and he was indicted on fraud and conspiracy charges, he retained the services of high- powered law firm Rabin & Levy for his defense.

After six years and $7 million in legal fees, Webber received only a $250,000 fine, and the defense team went out to celebrate at a Washington, D.C.-area restaurant called Di Forenza. During dinner, lawyer Peter Smith overheard several investment bankers at an adjoining table discussing a hot Internet start-up that was about to go public.

Smith took a portion of his earnings from the Webber case and bought several hundred shares in Gadgets.com, quadrupling his investment before selling them four months later. Gadgets.com's two founders used the sudden influx of investment capital to outfit their office with modern Danish furniture, in a sale brokered by the New York gallery Modern Now! in 1998.

After the ensuing dot-com bust, Modern Now! was forced out of business, and Sotheby's auction house was put in charge of liquidating its inventory. The commission from that auction enabled auctioneer Mary Schafer to retire to the Ozark region of Missouri in 2006. Last month, while passing through Hazelwood, she took her Audi to Marlin Car Wash, where Kellener was one of the employees who tended to her car. She was so satisfied with the job that she left a $50 tip, which the manager divided among the people working that day.

"This money didn't just affect one life," Laffer said. "It affected five."

trickle down eco works

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[Bloomberg] How George Bush, Big Spender, Destroyed Nirvana

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