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Posts Tagged ‘Reagan’

There’s an interesting debate in the blogosphere about whether President George W. Bush was a conservative (here’s a good summary of the discussion, along with lots of links, though I especially like this analysis since it cites my work.).

I’ve already explained that Bush was a statist rather than a conservative, and you can find additional commentary from me here, here, here, and here.

Simply stated, any President who doubles the burden of federal spending in just eight years is disqualified from being a conservative – unless the term is stripped of any meaning and conservatives no longer care about limited government and constitutional constraints on Washington.

But if you don’t want to read the blog posts I linked above, this chart should make clear that Bush was a big spender, not only when compared to Reagan, but also compared to Clinton. Moreover, we’re only looking at overall domestic spending, so this doesn’t include Iraq, Afghanistan, and other defense expenditures. And these are inflation-adjusted dollars, so we’re comparing apples to apples.

But let’s also examine the burden of domestic spending as a share of GDP. As you can see, there actually was progress during the Clinton years, and significant progress during the Reagan years. But all that was completely wiped out during the Bush presidency.

These numbers should not be a surprise. During Bush’s tenure, we got the no-bureaucrat-left-behind education bill, two corrupt farm bills, a new prescription drug entitlement, two pork-filled transportation bills, an auto company bailout, and a TARP bailout for banks.

This was a time of feasting for special interest groups and lobbyists, to put it mildly.

If that’s conservative, then Ronald Reagan was a liberal.

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America faces a fiscal crisis. The burden of federal spending has doubled during the Bush-Obama years, a $2 trillion increase in just 10 years. But that’s just the tip of the proverbial iceberg. Because of demographic changes and poorly designed entitlement programs, the federal budget is going to consume larger and larger shares of America’s economic output in coming decades.

For all intents and purposes, the United States appears doomed to become a bankrupt welfare state like Greece.

But we can save ourselves. A previous video showed how both Ronald Reagan and Bill Clinton achieved positive fiscal changes by limiting the growth of federal spending, with particular emphasis on reductions in the burden of domestic spending. This new video from the Center for Freedom and Prosperity provides examples from other nations to show that good fiscal policy is possible if politicians simply limit the growth of government.

These success stories from Canada, Ireland, Slovakia, and New Zealand share one common characteristic. By freezing or sharply constraining the growth of government outlays, nations were able to rapidly shrinking the economic burden of government, as measured by comparing the size of the budget to overall economic output.

Ireland and New Zealand actually froze spending for multi-year periods, while Canada and Slovakia limited annual spending increases to about 1 percent. By comparison, government spending during the Bush-Obama years has increased by an average of more than 7-1/2 percent. And the burden of domestic spending has exploded during the Bush-Obama years, especially compared to the fiscal discipline of the Reagan years. No wonder the United States is in fiscal trouble.

Heck, even Bill Clinton looks pretty good compared to the miserable fiscal policy of the past 10 years.

The moral of the story is that limiting the growth of spending works. There’s no need for miracles. If politicians act responsibly and restrain spending, that allows the private sector to grow faster than the burden of government. That’s the definition of good fiscal policy. The new video above shows that other nations have been very successful with that approach. And here’s the video showing how Reagan and Clinton limited spending in America.

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Since February is the 100th anniversary of Ronald Reagan’s birth and I still haven’t gotten over my man-crush on the Gipper, I figured it would be interesting to look at Reagan’s fiscal record, particularly to see whether he was successful in restraining the growth of domestic spending.

There is lots of good information in the Historical Tables of the Budget, which is produced by the Office of Management and Budget. I was particularly fascinated by the data on inflation-adjusted total domestic spending (discretionary and entitlements), which can be obtained by adding columns E and H of Table 8.2.

As you can see in this chart, Reagan managed to limit average domestic spending increases to less than one percent per year. These figures, which are adjusted for inflation, show that spending has grown more than five times as rapidly during the Bush-Obama years.

The comparison is even more dramatic if we examine the average annual increase in inflation-adjusted domestic spending. In other words, we’re looking at how much spending increased each year, not the percentage change. During the Reagan years, overall domestic spending grew less than $10 billion per year, while spending has soared more than $100 billion per year during the Bush-Obama era. Remember that we’re using inflation-adjusted dollars, so this is an apples-to-apples comparison.

The final chart maps annual domestic spending (in constant 2005 dollars) for Reagan’s eight fiscal years on the right vertical axis and the 10 fiscal years of Bush-Obama on the left vertical axis. Two things stand out. First, the bailout dramatically affected outlays in recent years, both because of a huge jump in fiscal year 2009 and an artificial dampening in the past two years (because repayments from banks and other bailed-out institutions count as “negative spending” rather than revenues).

Second, you can’t blame the poor record of Bush and Obama on bailouts. The chart axes are designed to give a similar starting point for Reagan’s spending and Bush-Obama spending, and it is obvious that Bush’s approach of so-called compassionate conservatism meant a bigger and more wasteful budget for domestic spending. Obama promised hope and change, of course, but he grabbed the big-spending baton from Bush and continued in the same direction, though TARP payments and repayments make it more challenging to discern the precise impact of the “stimulus” and other Obama initiatives (Tables 8.6 and 8.8 of the Historical Tables have program-by-program data for those who want the gory details).

Last but not least, don’t forget that FY2009 began October 1, 2008, nearly four months before Obama took office, and the bad numbers for that fiscal year generally should be attributed to Bush. Yes, Obama added to FY2009 spending with an omnibus appropriations bill and the faux stimulus, but I’ve estimated that 96 percent of that year’s spending was the result of Bush Administration decisions.

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President Obama unveiled his fiscal year 2012 budget today, and there’s good news and bad news. The good news is that there’s no major initiative such as the so-called stimulus scheme or the government-run healthcare proposal. The bad news, though, is that government is far too big and Obama’s budget does nothing to address this problem.

But perhaps the folks on Capitol Hill will be more responsible and actually try to save America from becoming a big-government, European-style welfare state. The solution may not be easy, but it is simple. Lawmakers merely need to restrain the growth of government spending so that it grows slower than the private economy.

Actual spending cuts would be the best option, of course, but limiting the growth of spending is all that’s needed to slowly shrink the burden of government spending relative to gross domestic product.

Fortunately, we have two role models from recent history that show it is possible to control the federal budget. This video from the Center for Freedom and Prosperity uses data from the Historical Tables of the Budget to demonstrate the fiscal policy achievements of both Ronald Reagan and Bill Clinton.

Some people will want to argue about who gets credit for the good fiscal policy of the 1980s and 1990s.

Bill Clinton’s performance, for instance, may not have been so impressive if he had succeeded in pushing through his version of government-run healthcare or if he didn’t have to deal with a Republican Congress after the 1994 elections. But that’s a debate for partisans. All that matters is that the burden of government spending fell during Bill Clinton’s reign, and that was good for the budget and good for the economy. And there’s no question he did a much better job than George W. Bush.

Indeed, a major theme in this new video is that the past 10 years have been a fiscal disaster. Both Bush and Obama have dramatically boosted the burden of government spending – largely because of rapid increases in domestic spending.

This is one of the reasons why the economy is weak. For further information, this video looks at the theoretical case for small government and this video examines the empirical evidence against big government.

Another problem is that many people in Washington are fixated on deficits and debt, but that’s akin to focusing on symptoms and ignoring the underlying disease. To elaborate, this video explains that America’s fiscal problem is too much spending rather than too much debt.

Last but not least, this video reviews the theory and evidence for the “Rahn Curve,” which is the notion that there is a growth-maximizing level of government outlays. The bad news is that government already is far too big in the United States. This is undermining prosperity and reducing competitiveness.

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Ronald Reagan would have been 100 years old on February 6, so let’s celebrate his life by comparing the success of his pro-market policies with the failure of Barack Obama’s policies (which are basically a continuation of George W. Bush’s policies, so this is not a partisan jab).

The Federal Reserve Bank of Minneapolis has a fascinating (at least for economic geeks) interactive webpage that allows readers to compare economic downturns and recoveries, both on the basis of output and employment.

The results are remarkable. Reagan focused on reducing the burden of government and the economy responded. Obama (and Bush) tried the opposite approach, but spending, bailouts, and intervention have not worked. This first chart shows economic output.

The employment chart below provides an equally stark comparison. If anything, this second chart is even more damning since employment has not bounced back from the trough. But that shouldn’t be too surprising. Why create jobs when government is subsidizing unemployment and penalizing production? And we already know the so-called stimulus has been a flop.

None of this should be interpreted to mean Reagan is ready for sainthood. He made plenty of compromises during his eight years in office, and some of them were detours in the wrong direction. But the general direction was positive, which is why he’s the best President of my lifetime.*

*Though he may not be the best President of the 20th Century.

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Previous posts on this blog have featured charts showing that Obama’s policies are not working (see here and here). I even showed a cartoon making the same point.And I cited a column with data comparing Reagan and Obama.

The Heritage Foundation has a very powerful addition to this genre, a chart comparing job performance during the Reagan and Obama Administrations.

This is a remarkable image, but let’s start with some disclaimers. There are lots of factors that impact economic performance, and many of them are outside the control of politicians. Moreover, it is impossible to know what would have happened in the past two years or in the early 1980s if Obama or Reagan had chosen different policies.

But even with these caveats, it is difficult to look at this chart and not conclude that Obama’s big government policies are much less successful than Reagan’s small government policies.

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In a previous post, I commented on a Wall Street Journal column by former Senator Phil Gramm, calling attention to evidence that the economy is under-performing compared to what happened after previous recessions. This is an important issue, particularly when you compare the economy’s tepid performance today with the strong recovery following the implementation of Reaganomics. But there was another part of the column that also is worth highlighting. Much of what we are seeing from the Obama Administration is disturbingly reminiscent of the anti-growth policies of Hoover and Roosevelt, particularly the punitive class-warfare mentality. Here’s how Senator Gramm characterizes the similarities.

Today’s lagging growth and persistent high unemployment are reminiscent of the 1930s, perhaps because in no other period of American history has our government followed policies as similar to those of the Great Depression era.

…The top individual income tax rate rose from 24% to 63% to 79% during the Hoover and Roosevelt administrations. Corporate rates were increased to 15% from 11%, and when private businesses did not invest, Congress imposed a 27% undistributed profits tax.

In 1929, the U.S. government collected $1.1 billion in total income taxes; by 1935 collections had fallen to $527 million. …The Roosevelt administration also conducted a seven-year populist tirade against private business, which FDR denounced as the province of “economic royalists” and “malefactors of great wealth.”

… Churchill, who was generally guarded when criticizing New Deal policies, could not hold back. “The disposition to hunt down rich men as if they were noxious beasts,” he noted in “Great Contemporaries” (1939), is “a very attractive sport.” But “confidence is shaken and enterprise chilled, and the unemployed queue up at the soup kitchens or march out to the public works with ever growing expense to the taxpayer and nothing more appetizing to take home to their families than the leg or wing of what was once a millionaire. . . It is indispensable to the wealth of nations and to the wage and life standards of labour, that capital and credit should be honoured and cherished partners in the economic system. . . .”

The regulatory burden exploded during the Roosevelt administration, not just through the creation of new government agencies but through an extraordinary barrage of executive orders—more than all subsequent presidents through Bill Clinton combined. Then, as now, uncertainty reigned. …Henry Morgenthau summarized the policy failure to the House Ways and Means Committee in April 1939: “Now, gentleman, we have tried spending money. We are spending more than we have ever spent before and it does not work . . . I say after eight years of this administration we have just as much unemployment as when we started . . . and an enormous debt, to boot.”

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