February 17, 2006
Reagan vs. Bush: Federal Spending and Budget Deficits
By John
McIntyre
Ryan Sager
reports that at last week's 33rd annual Conservative Political
Action Conference in Washington, on the issue of federal spending
many were pushing for a return to Reagan policies versus those
of this President Bush. Rep. Mike Spence told the audience:
Whether
it's called 'compassionate conservatism' or 'big government
Republicanism,' after years of record increases in federal spending,
more government is now the accepted Republican philosophy in
Washington.
Pence reached
for the Reagan legacy, quoting the former President in 1975: "A
political party cannot be all things to all people. It must represent
certain fundamental beliefs which must not be compromised to political
expediency, simply to swell its ranks."
Andrew Sullivan
has also taken to castigating President Bush for out of control
spending and ballooning deficits:
Remember
when conservatism meant fiscal responsibility? When you add
it all up (Bush’s spending), you get the simple, devastating
fact that Bush, in a mere five years, has added $1.5 trillion
to the national debt. The interest on that debt will soon add
up to the cost of two Katrinas a year……
This
may, in fact, be Bush’s real domestic legacy. All a Democratic
successor has to do is raise taxes to pay for his splurge, and
we will have had the biggest expansion of government power,
size and responsibility since the 1930s. What would Reagan say?
Well, let’s
take a look at the Reagan legacy on federal spending and deficits.
In 1980, the last year of Jimmy Carter’s presidency, government
outlays were running at 21.7% of GDP and the budget deficit was
2.7% of GDP. (The economy was also a basket case, which is when
you would expect budget deficits to be at their worse.) In 1988,
Reagan’s last year in office, outlays as a percent of GDP
were running at 21.3% with a deficit of 3.1% of GDP. The budget
deficit over Reagan’s eight years averaged 4.2% and ran
as high as 6.0% in 1983.
Bush entered
office with an economy that was booming: in 2000 government outlays
ran at 18.4% of GDP with a budget surplus of 2.4%. But the stock
market implosion, 9/11 and the war quickly changed the budget
dynamics and the surplus switched to a deficit of 3.5% in 2003
and 3.6% in 2004. In 2005, the budget deficit came in at 2.6%,
with government outlays running at 20.1% of GDP.
The point
here is that there is lot of hyperventilating about the Bush administration’s
spending and “out of control” deficits, much of it
by folks who praise Reagan yet trash Bush. But the most recent
“out of control” Bush deficit at 2.6% of GDP is far
below the eight-year Reagan average of 4.2%.
This is not
meant to disparage Reagan, only to provide perspective. When you
look at the numbers on a proportional basis - which is the only
way to honestly compare different eras - Bush’s federal
spending is not “out of control,” at least in comparison
to Ronald Reagan.
What is not
fully appreciated in analyzing the Bush legacy is that the combination
of the stock market implosion (Nasdaq: 5,000 – 1100, S&P:
1500 - 800 ) and the economic impact of 9/11 created a perfect
storm of forces that came perilously close to tipping the economy
into a deflationary depression. The tandem of the Bush tax cuts
(and deficits) coupled with the FED’s fire hose of money
led by a 1% FED Funds rate saved the economy from a real disaster.
Given the circumstances Bush inherited in his first 18 months
in office, the economic growth we have sustained over the last
4 years is nothing short of miraculous. And when it comes to talking
about spending and deficits, growth is the most important factor
– something critics of the President seem quick to overlook.
It wasn’t
Bill Clinton or the GOP Congress that ultimately balanced the
budget in the late 90’s, it was the growth of the US economy
and the corresponding tidal wave of additional revenue. Conservatives
may harp on President Bush for increasing government outlays from
18½% to 20%, but the increase is almost exclusively spending
on defense, homeland security and the war - all of which is a
response to 9/11. The growth in non-security discretionary spending
has been cut every year of the Bush presidency.
Notwithstanding
all we have heard recently on earmarks, the real spending problem
stems from entitlement programs. Bush spent most of last year
trying to get the Congress to proactively deal with the impending
Social Security crisis. In the end the President failed, but politically
I don’t know that is fair to blame Bush for not reforming
Social Security.
The new prescription
drug entitlement is a different story, and there is a consensus
developing among conservatives that this was a mistake. The reality,
however, is that some kind of prescription drug package was going
to become law at some point and the White House made a political
decision that this bill was good enough to take the issue off
the table.
After several
years of solid economic growth - with the FED having recouped
14 quarter-point bullets in their holster and with a Republican
Congress and Republican President (unlike President Reagan who
had to contend with a Democratic House) - it is not unreasonable
for conservatives to demand some fiscal restraint. We have seen
some attempts to slow the growth in entitlements in the recent
budget. Now we’ll see whether Bush and the Congress can
follow through and deliver on some of these savings.
The point isn't to say the size of government can't be reduced
or Bush can't do a better job on the spending, only that a little
historical perspective is in order before people go about trashing
Bush's reputation as a conservative using comparisons with Reagan's
spending record.
John
McIntyre is the co-founder of RealClearPolitics.
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