In Washington all serious people routinely write columns in which they set themselves above the political fray and pronounce the Republicans and Democrats equally to blame for political gridlock and all that they see wrong with the world. Today, it is my turn.
Of course beating up on the Republicans is pretty easy these days; you mostly just have to repeat what they say. Their standard bearer, House Budget Committee Chairman Paul Ryan, has proposed a budget that eliminates the national park system, the Justice Department and federal courts, the Food and Drug Administration and most other areas of the federal budget over the next four decades.
According to the analysis done by the Congressional Budget Office, the Ryan budget, which was endorsed by the Republican House and Governor Mitt Romney, shrinks non-Social Security and non-health care spending to 4.75 percent of GDP by 2040 and to 3.75 percent of GDP by 2050. With the military budget taking up 3-4 percent of GDP, everything else goes to zero somewhere in this period.
Ryan also proposes massive tax increases on the middle class to finance tax cuts to the wealthy. He wants to reduce the top tax rate on high-income earners by more than one-third compared with its baseline level. He proposes to maintain revenue neutrality be eliminating tax deductions that benefit the middle class, like the mortgage interest tax deduction and the deduction for employer-provided health insurance.
How many people will feel good about a budget that eliminates most of the governmental functions that we take for granted -- drug safety, courts, a State Department and passport office? How will people feel about paying higher taxes so that Mitt Romney can pay less? These are the questions raised by the Republican budget. Hopefully they will be presented clearly in the campaign so that the public can make an informed choice.
While beating up on the Republicans is pretty much child's play, it is necessary to do a little homework for the demolition of the Democrats. The Democrats rely on their great myth: Bill Clinton made the hard choices, cutting spending and raising taxes. This led not only to a balanced budget, but to large surpluses. As former Treasury Secretary Larry Summers said, he had the privilege as Treasury Secretary to be buying back federal debt. In this story, the economy was rewarded with strong growth, low unemployment, and a declining national debt, all by virtue of President Clinton's courage in reducing the budget deficit.
It's a nice story, but it's long past time that we put this fairy tale to rest. In 1996, after all the "hard choices" had been made (subsequent changes on net raised the budget deficit), the Congressional Budget Office (CBO) was still projecting a deficit of 2.5 percent of GDP (@$460 billion in today's economy) for 2000. The reason that we ended up with a surplus of $240 billion instead of a deficit of approximately the same size was that the economy grew much more rapidly than had been expected, pushing the unemployment rate down to 4.0 percent in 2000, rather than the 6.0 percent projected .
There were two reasons that the economy grew so rapidly over this four-year period. First, Alan Greenspan allowed it to grow. The conventional wisdom in the economics profession at the time was that the rate of inflation would increase dangerously if the unemployment rate fell below 6.0 percent. This view implied that the Fed should raise interest rates to slow the economy and keep people from getting jobs once the unemployment rate was near 6.0 percent.
Greenspan was not an orthodox economist. As a result, he was prepared to allow the unemployment rate to continue to drop through the late 90s, over-riding the objections of the Clinton appointees to the Fed.
The other reason that the economy grew so rapidly and the deficit flipped to a surplus was the stock market bubble. This bubble propelled growth both directly by allowing Internet start-ups to finance half-baked schemes. The investment from these projects generated demand, just like any make-work project, even if the companies never had a prayer of making a profit.
The other way the bubble boosted the economy was by creating a consumption boom. People spent based on their newly generated stock wealth, pushing the saving rate to what were at the time record lows.
In short, the real story of the balanced budget in the '90s had little to do with Clinton's hard choices. It was attributable on the one hand to an eclectic Fed chairman who was prepared to ignore the orthodoxy within the economics profession and allow the unemployment rate to fall to levels generally thought impossible to attain by economists. On the other hand, it was driven by an unsustainable asset bubble.
This is key part that people want to remember going forward. The prosperity at the end of the Clinton years was unsustainable because it rested on a bubble that was destined to burst. And it did burst exactly as President Clinton was making his plans to leave the White House. The economy did not regain the jobs lost in the 2001 recession until 2005, and even then it was on the back of another unsustainable bubble, this one in the housing market. And we know how that one ended.
So the Democrats' morality tale of hard budget choices and virtuous austerity turns out not to hold water. If this myth is exposed perhaps they can be prodded into talking more seriously about the economy in the months leading up to the election.
Follow Dean Baker on Twitter: www.twitter.com/DeanBaker13
NO ONE is Shutting Down the Nat Parks et all . .
Short sighted plans and new Labor saving tech has been a job killer.We have reduced the need for the Ford model and that has spread to many other industries;such as print and book keeping.The number of men or women it takes to produce and ship goods has declined as populations have grown.Take this problem out to the financial markets and you don't need bank tellers or stock traders and this continues at expoential rates due to better robotics and processes.
Our economic model is still stuck in the past and we have to change the way we view trade and labor,or this will become more than a social issue, it will wrend our society beyond mending.
Anyway, you're quibbling to avoid the big picture, which is, Clinton pushed for increased taxes (to go with spending cuts) and the result was a dramatically better budget than the Republicans before him, or the one after.
But that's not what's being discussed in this article, which is a shame.
. . BUT, like here, I seldom agree with him.
TWO HUGE MISCONCEPTIONS IN THIS ARTICLE
1) Mr. Baker says the Budget Surpluses "had little to do with Clinton's hard choices"
COMPLETE NONSENSE, while it is true that the StockBubble was a bigger factor
ALSO, INCREDIBLY IMPORTANT WAS
"On February 15, 1993, Clinton made his first address to the nation, announcing his plan to raise taxes to cap the budget deficit.
Two days later, in a nationally televised address to a joint session of Congress, Clinton unveiled his economic plan.
The plan focused on reducing the deficit rather than on cutting taxes for the middle class, which had been high on his campaign agenda.
Clinton's advisers pressured him to raise taxes on the theory that a smaller federal budget deficit would reduce bond interest rates"
http://en.wikipedia.org/wiki/Bill_Clinton
2) Although TECHNICALLY, it was a Stock-Bubble, it was really
* DOT-COM BUBBLE (SEE "Dot Con" http://www.c-spanvideo.org/program/168937-1)
* PLUS TECHNOLOGY REVOLUTION in Computers, Software, Networking, & Internet
* Efforts to avoid the Y2K Problem
People from all over the world wanted to (and did) put their money into the American stock market. It was the best investment in the world.
When Republicans cut taxes and weakened the economy, people found other places for their money.
I agree that speculation was part of the bubble problem. To much money was chasing the stock market. A LOT of that money came from outside the U.S. and helped our economy.
The problem, as I see it, in the stock bubble and the housing bubble is that as things were going up, to much money was siphoned off the top by the managers. When things crash, they get to keep all the fees.
the market began to plunge in March of 2000, while Bill Clinton was still sitting in the White House.
If you do not agree that a strong and balanced economy brings in more investment from the World, just say so.
Well, we already do without two of these. (at least in a competent manner) The FDA is nothing more than a rubber stamp for the corporations that line the pockets of the politicians. The courts are a corrupt mess where you only get justice if you can afford it.
Stockman says "the second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40% of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970."
Who's to blame? Not big-spending Dems, says Stockman, but "from the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts."
Ronald Reagan’s budget chief, David Stockman, was equally harsh. “If there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing,” he wrote in a New York Times op-ed, noting the trillions of dollars those tax cuts are adding to the deficit.”