On this day last year, I posted two charts that I developed using the Minneapolis Federal Reserve Bank’s interactive website.

Those two charts showed that the current recovery was very weak compared to the boom of the early 1980s.

But perhaps that was an unfair comparison. Maybe the Reagan recovery started strong and then hit a wall. Or maybe the Obama recovery was the economic equivalent of a late bloomer.

So let’s look at the same charts, but add an extra year of data. Does it make a difference?

Meh… not so much.

Let’s start with the GDP data. The comparison is striking. Under Reagan’s policies, the economy skyrocketed.  Heck, the chart prepared by the Minneapolis Fed doesn’t even go high enough to show how well the economy performed during the 1980s.

Under Obama’s policies, by contrast, we’ve just barely gotten back to where we were when the recession began. Unlike past recessions, we haven’t enjoyed a strong bounce. And this means we haven’t recovered the output that was lost during the downturn.

This is a damning indictment of Obamanomics

Indeed, I made this point several months ago when analyzing some work by Nobel laureate Robert Lucas. And it’s been highlighted more recently by James Pethokoukis of the American Enterprise Institute and the news pages of the Wall Street Journal.

Unfortunately, the jobs chart is probably even more discouraging. As you can see, employment is still far below where it started.

This is in stark contrast to the jobs boom during the Reagan years.

So what does this mean? How do we measure the human cost of the foregone growth and jobs that haven’t been created?

Writing in today’s Wall Street Journal, former Senator Phil Gramm and budgetary expert Mike Solon compare the current recovery to the post-war average as well as to what happened under Reagan.

If in this “recovery” our economy had grown and generated jobs at the average rate achieved following the 10 previous postwar recessions, GDP per person would be $4,528 higher and 13.7 million more Americans would be working today. …President Ronald Reagan’s policies ignited a recovery so powerful that if it were being repeated today, real per capita GDP would be $5,694 higher than it is now—an extra $22,776 for a family of four. Some 16.9 million more Americans would have jobs.

By the way, the Gramm-Solon column also addresses the argument that this recovery is anemic because the downturn was caused by a financial crisis. That’s certainly a reasonable argument, but they point out that Reagan had to deal with the damage caused by high inflation, which certainly wreaked havoc with parts of the financial system. They also compare today’s weak recovery to the boom that followed the financial crisis of 1907.

But I want to make a different point. As I’ve written before, Obama is not responsible for the current downturn. Yes, he was a Senator and he was part of the bipartisan consensus for easy money, Fannie/Freddie subsidies, bailout-fueled moral hazard, and a playing field tilted in favor of debt, but his share of the blame wouldn’t even merit an asterisk.

My problem with Obama is that he hasn’t fixed any of the problems. Instead, he has kept in place all of the bad policies – and in some cases made them worse. Indeed, I challenge anyone to identify a meaningful difference between the economic policy of Obama and the economic policy of Bush.

• Bush increased government spending. Obama has been increasing government spending.
• Bush adopted Keynesian “stimulus” policies. Obama adopted Keynesian “stimulus” policies.
• Bush bailed out politically connected companies. Obama has been bailing out politically connected companies.
• Bush supported the Fed’s easy-money policy. Obama has been supporting the Fed’s easy-money policy.
• Bush created a new health care entitlement. Obama created a new health care entitlement.
• Bush imposed costly new regulations on the financial sector. Obama imposed costly new regulations on the financial sector.

I could continue, but you probably get the  point. On economic issues, the only real difference is that Bush cut taxes and Obama is in favor of higher taxes. Though even that difference is somewhat overblown since Obama’s tax policies – up to this point – haven’t had a big impact on the overall tax burden (though that could change if his plans for higher tax rates ever go into effect).

This is why I always tell people not to pay attention to party labels. Bigger government doesn’t work, regardless of whether a politician is a Republican or Democrat. The problem isn’t Obamanomics, it’s Bushobamanomics. But since that’s a bit awkward, let’s just call it statism.

One Year Later, Another Look at Obamanomics vs. Reaganomics is a post from Cato @ Liberty - Cato Institute Blog

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. (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.

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.

Bush Was Not a Conservative is a post from Cato @ Liberty - Cato Institute Blog

In 2008, the election of President Barack Obama was widely touted as a repudiation of President George W. Bush’s messianic vision that “Our common prosperity will be advanced by allowing all humanity—men and women—to reach their full potential.” In the years following America’s failed democratic experiment in Iraq, many Americans began to spurn the Bush era’s presumptuous conviction that “We have the power to make the world we seek.” Liberals in particular roundly rejected the supposed “unyielding belief” that America is called to lead the cause of “rule of law” and “the equal administration of justice” around the world. Such pious declarations are in keeping with Bush’s neo-Wilsonian foreign policy.  Does it surprise you then, that all of the quotes above were made by President Obama in his June 2009 speech at Cairo University?

Americans who favor establishing a no-fly zone over Libya hope that such an effort will save lives. What Americans have not learned is exactly what transgressions warrant the use of American force. The primary constitutional function of the U.S. Government is to defend against threats to the national interest. However, because the definition of “interest” has expanded by leaps and bounds, the United States now combats an exhausting proliferation of “threats” even in the absence of discernable enemies. Hence, the proposal of a no-fly zone over Libya is merely the latest iteration of a long-standing grand strategy that implicitly endorses an interventionist foreign policy.

Despite the fact that humanitarian assistance to Libya remains, in principle, morally defensible, the primary question is whether military action is best suited to such a task. As Christopher Coyne, Assistant Professor of Economics at West Virginia University argues, its the “Nirvana Fallacy.”

The Nirvana Fallacy is the false assumption that in the face of weak, failed or illiberal governments, external occupiers can provide a better outcome than what would exist in the absence of those efforts. But what authority does President Obama have to embark upon a mission to change the very structure of societies on the other side of the earth?

As a libertarian, I believe that intangible variables such as values, traditions, and belief systems, go beyond a U.S. policymaker’s ability—and jurisdiction—to control. Yet with worldwide attention now on Libya, it seems that once again the extension of freedom abroad is being subsumed under the mantle of America’s legitimate self-defense. Don’t believe the hype.

As George Kennan, American diplomat and “father of Cold War containment” strategy once said:

“Anyone who has ever studied the history of American diplomacy, especially military diplomacy, knows that you might start in a war with certain things on your mind as a purpose of what you are doing, but in the end, you found yourself fighting for entirely different things that you had never thought of before…In other words, war has a momentum of its own and it carries you away from all thoughtful intentions when you get into it.”

Kennan continues: “Today, if we went into Iraq, like the president would like us to do, you know where you begin. You never know where you are going to end.”

Now imagine if a politician wanted to build a bridge and said “I don’t know how much it will cost. I don’t know how many engineers I need. I don’t know how long it will take. And I don’t know whether it’ll even get built or stay up if it is. But give me the money and I’ll build the bridge anyway.” Yet this is exactly what we do when it comes to intervention. Never mind how long a no-fly zone will last, how many soldiers we would commit, or how whether it may precipitate a ground invasion and possibly regime change. We apply more stringent criteria to domestic policy than to proposals to pacify a foreign population.

Like most Americans, I too have a natural desire to see human suffering alleviated.  And so the United States can and should support people’s power and other anti-government movements when possible. But Americans have become confused over what “support” really means. Not backing dictators with billions of dollars would be a start. Another would be, when feasible, resorting to economic sanctions, though they have a poor track record. But we have come to rely too heavily—almost as an option of first resort—of relying on military intervention. Luckily, the shockwave of mass protests sweeping through the Middle East finally gives America the opportunity to support freedom in the Middle East in a non-military way. Accordingly, a foreign-led effort to liberate Libya will implicitly deprive local people of their ability to deal with this political conflict on their own. As British philosopher John Stuart Mill writes in his classic text “A Few Words on Nonintervention,” the subjects of an oppressive ruler must achieve freedom for themselves:

The only test possessing any real value, of a people’s having become fit for popular institutions is that they, or a sufficient portion of them to prevail in the contest, are willing to brave labour and danger for their liberation.

…

But the evil is, that if they have not sufficient love of liberty to be able to wrest it from merely domestic oppressors, the liberty which is bestowed on them by other hands than their own, will have nothing real, nothing permanent.

Should America ‘Liberate’ Libya? is a post from Cato @ Liberty - Cato Institute Blog

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.

Spending Restraint Works: Examples from Around the World is a post from Cato @ Liberty - Cato Institute Blog

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.

To Fix the Budget, Bring Back Reagan…or Even Clinton is a post from Cato @ Liberty - Cato Institute Blog

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.

Comparing Reaganomics and Obamanomics is a post from Cato @ Liberty - Cato Institute Blog

From a New York Times report on NBC’s interview:

Former Vice President Dick Cheney . . .  said President Obama is likely to be a one-term president because his policies are unpopular with the public.

“His overall approach to expanding the size of government, expanding the deficit, and giving more and more authority and power to the government over the private sector,” Mr. Cheney said in an interview with Jamie Gangel for NBC News. “Those are all weaknesses, as I look at Barack Obama. And I think he’ll be a one term President.”

I recall the Bush-Cheney administration also came under criticism for “expanding the size of government, expanding the deficit, and giving more and more authority and power to the government,” and it didn’t prevent him from being reelected.

Well, Bush Got Two Terms is a post from Cato @ Liberty - Cato Institute Blog

Thanks to decades of reckless spending by European welfare states, the newspapers are filled with headlines about debt, default, contagion, and bankruptcy.

We know that Greece and Ireland already have received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the “Most Likely to Appease the Political Class” Award.

But which nation will be the next domino to fall? Who will get the next direct bailout?

Some people think total government debt is the key variable, and there’s been a lot of talk that debt levels of 90 percent of GDP represent some sort of fiscal Maginot Line. Once nations get above that level, there’s a risk of some sort of crisis.

But that’s not necessarily a good rule of thumb. This chart, based on 2010 data from the Economist Intelligence Unit (which can be viewed with a very user-friendly map), shows that Japan’s debt is nearly 200 percent of GDP, yet Japanese debt is considered very safe, based on the market for credit default swaps, which measures the cost of insuring debt. Indeed, only U.S. debt is seen as a better bet.

Interest payments on debt may be a better gauge of a nation’s fiscal health. The next chart shows the same countries (2011 data), and the two nations with the highest interest costs, Greece and Ireland, already have been bailed out. Interestingly, Japan is in the best shape, even though it has the biggest debt. This shows why interest rates are very important. If investors think a nation is safe, they don’t require high interest rates to compensate them for the risk of default (fears of future inflation also can play a role, since investors don’t like getting repaid with devalued currency).

Based on this second chart, it appears that Italy, Portugal, and Belgium are the next dominos to topple. Portugal may be the best bet (no pun intended) based on credit default swap rates, and that certainly is consistent with the current speculation about an official bailout.

Spain is the wild card in this analysis. It has the second-lowest level of both debt and interest payments as shares of GDP, but the CDS market shows that Spanish government debt is a greater risk than bonds from either Italy or Belgium.

By the way, the CDS market shows that lending money to Illinois and California is also riskier than lending to either Italy or Belgium.

The moral of the story is that there is no magic point where deficit spending leads to a fiscal crisis, but we do know that it is a bad idea for governments to engage in reckless spending over a long period of time. That’s a recipe for stifling taxes and large deficits. And when investors see the resulting combination of sluggish growth and rising debt, eventually they will run out of patience.

The Bush-Obama policy of big government has moved America in the wrong direction. But if the data above is any indication, America probably has some breathing room. What happens on the budget this year may be an indication of whether we use that time wisely.

Which Nation Will Be the Next European Debt Domino…or Will It Be the United States? is a post from Cato @ Liberty - Cato Institute Blog

I’m understandably fond of my video exposing the flaws of Keynesian stimulus theory, but I think my former intern has an excellent contribution to the debate with this new 5-minute mini-documentary.

The main insight of the mini-documentary is that Gross Domestic Product (GDP) only measures how national output is allocated between consumption, investment, and government. That’s useful information in many ways, but if we want more output, we should focus on Gross Domestic Income (GDI), which measures how national income is earned.

Focusing on GDI hopefully would lead lawmakers to consider ways of boosting employee compensation, corporate profits, small business income, and other components of national income. Focusing on GDP, by contrast, is misguided since any effort to boost consumption generally leads to less investment. This is why Keynesian policies only redistribute national income, but don’t boost overall output.

You may recognize Hiwa. She narrated a very popular video earlier this year on the nightmare of income-tax complexity.

The Consumer Spending Fallacy behind Keynesian Economics is a post from Cato @ Liberty - Cato Institute Blog

Gallup just released a poll showing that 46 percent of Americans view the federal government as an immediate threat to the rights and freedoms of ordinary Americans. My first reaction was to wonder why the number was so low. After all, we have a political elite that wants to do everything from control our health care to monitor our financial transactions.

But a secondary set of numbers is even more remarkable. As seen in this chart, both Republicans and Democrats tend to view the federal government as a threat mostly when the White House is controlled by the other party.

This complacency is very unfortunate. Republicans presumably want to limit government control over the economy, yet it was the Bush Administration that put in place policies such as Sarbanes-Oxley, the banana-republic TARP bailout, the corrupt farm bills, and the pork-filled transportation bills. Democrats, meanwhile, presumably want to protect our civil liberties, yet the Obama Administration has left in place virtually all of the Bush policies that the left was upset about just two years ago. There has been no effort to undo the more troublesome provisions of the PATRIOT Act. And shouldn’t honest liberals be upset that the Obama Administration is going to such lengths to defend the military’s don’t-ask-don’t-tell policy?

The lesson to be learned is that there is an unfortunate tendency for politicians to misbehave when they get control of the machinery of government. Lord Acton warned that “Power corrupts and absolute power corrupts absolutely.” It’s almost as if Republicans and Democrats do their best every day to confirm this statement.

Republicans and Democrats Should Be Especially Concerned about the Threat of Government When Their Party Is in Charge is a post from Cato @ Liberty - Cato Institute Blog

I’m still dealing with the statist echo chamber, having been hit with two additional attacks for the supposed sin of endorsing Reaganomics over Obamanomics (my responses to the other attacks can be found here and here). Some guy at the Atlantic Monthly named Steve Benen issued a critique focusing on the timing of the recession and recovery in Reagan’s first term. He reproduces a Krugman chart (see below) and also adds his own commentary.

Reagan’s first big tax cut was signed in August 1981. Over the next year or so, unemployment went from just over 7% to just under 11%. In September 1982, Reagan raised taxes, and unemployment fell soon after. We’re all aware, of course, of the correlation/causation dynamic, but as Krugman noted in January, “[U]nemployment, which had been stable until Reagan cut taxes, soared during the 15 months that followed the tax cut; it didn’t start falling until Reagan backtracked and raised taxes.”

This argument is absurd since the recession in the early 1980s was largely the inevitable result of the Federal Reserve’s misguided monetary policy. And I would be stunned if this view wasn’t shared by 90 percent-plus of economists. So it is rather silly to say the recession was caused by tax cuts and the recovery was triggered by tax increases.

But even if we magically assume monetary policy was perfect, Benen’s argument is wrong. I don’t want to repeat myself, so I’ll just call attention to my previous blog post which explained that it is critically important to look at when tax cuts (and increases) are implemented, not when they are enacted. The data is hardly exact, because I haven’t seen good research on the annual impact of bracket creep, but there was not much net tax relief during Reagan’s first couple of years because the tax cuts were phased in over several years and other taxes were going up. So the recession actually began when taxes were flat (or perhaps even rising) and the recovery began when the economy was receiving a net tax cut. That being said, I’m not arguing that the Reagan tax cuts ended the recession. They probably helped, to be sure, but we should do good tax policy to improve long-run growth, not because of some misguided effort to fine-tune short-run growth.

The second attack comes from some blog called Econospeak, where my newest fan wrote:

I’m scratching my head here as I thought the standard pseudo-supply-side line was that the deficit exploded in the 1980’s because government spending exploded. OK, the truth is that the ratio of Federal spending to GDP neither increased nor decreased during this period. Real tax revenues per capita fell which is why the deficit rose but this notion that the burden of government fell is not factually based.

Those are some interesting points, and I might respond to them if I wanted to open a new conversation, but they’re not germane to what I said. In my original post (the one he was attacking), I commented on the “burden of government” rather than the “burden of government spending.” I’m a fiscal policy economist, so I’m tempted to claim that the sun rises and sets based on what’s happening to taxes and spending, but such factors are just two of the many policies that influence economic performance. And with regard to my assertion that Reagan reduced the “burden of government,” I’ll defer to the rankings put together for the Economic Freedom of the World Index. The score for the United States improved from 8.03 to 8.38 between 1980 and 1990 (my guess is that it peaked in 1988, but they only have data for every five years). The folks on the left may be unhappy about it, but it is completely accurate to say Reagan reduced the burden of government. And while we don’t yet have data for the Obama years, there’s a 99 percent likelihood that America’s score will decline.

This is not a partisan argument, by the way. The Economic Freedom of the World chart shows that America’s score improved during the Clinton years, particularly his second term. And the data also shows that the U.S. score dropped during the Bush years. This is why I wrote a column back in 2007 advocating Clintonomics over Bushonomics. Partisan affiliation is not what matters. If we want more prosperity, the key is shrinking the burden of government.

Last but not least, I try to make these arguments to the folks watching MSNBC.

When Keynesians Attack, Part II is a post from Cato @ Liberty - Cato Institute Blog

Even though the Obama Administration claimed that squandering $800 billion on so-called stimulus would  keep the joblessness rate below 8 percent, the unemployment rate today is almost 10 percent. There are many reasons for the economy’s tepid performance, including a larger burden of government spending and the dampening effect of future tax rate increases (tax rates will jump significantly on January 1, 2011, when the 2003 tax cuts expire).

A closer look at the unemployment data, though , suggests that minimum wage laws also deserve a big share of the blame. In this Center for Freedom and Prosperity video, a former intern of mine (continuing a great tradition) explains that politicians destroyed jobs when they increased the minimum wage by more than 40 percent over a three-year period.

Mr. Divounguy is correct when he says businesses are not charities and that they only create jobs when they think a worker will generate net revenue. Higher minimum wages, needless to say, are especially destructive for people with poor work skills and limited work experience. This is why young people and minorities tend to suffer most – which is exactly what we see in the government data, with the teenage unemployment rates now at an astounding (and depressing) 26 percent level and blacks suffering from a joblessness rate of more than 15 percent.

In a free society, there should be no minimum wage law. From a philosophical perspective, such requirements interfere with the freedom of contract. In the imperfect world of politics, thought, the best we can hope for is that politicians occasionally do the right thing. Sadly, the recent minimum wage increases that have done so much damage were signed into law by President Bush. It’s worth noting that President Obama’s hands also are dirty on this issue, since he supported the job-killing measure when it passed the Senate in 2007. When the stupid party and the evil party both agree on a certain policy, that’s known as bipartisanship. In the real world, however, it’s called unemployment.

Minimum Wage Hikes Deserve Share of Blame for High Unemployment is a post from Cato @ Liberty - Cato Institute Blog

Analysts across the ideological spectrum generally agree that the government’s regulatory bodies fail far too frequently. However, analysts seem to learn different lessons from this experience.

Washington Post business columnist Steve Pearlstein cites numerous examples of failure and concludes, “It’s time for the business community to give up its jihad against regulation.”

He says:

It hardly captures the breadth and depth of these regulatory failures to say that during the Bush administration the pendulum swung a bit too far in the direction of deregulation and lax enforcement. What it misses is just how dramatically the regulatory agencies have been shrunken in size, stripped of talent and resources, demoralized by lousy leadership, captured by the industries they were meant to oversee and undermined by political interference and relentless attacks on their competence and purpose.

It’s true that regulators often do the bidding of the industries that they regulate. But “regulatory capture” is a long recognized phenomenon that undermines the contention that the government is well-suited to be a watchdog.

Regardless, is Pearlstein right that federal regulatory agencies were “dramatically” shrunk? Not according to a new study from George Washington University and Washington University in St. Louis. The figure shows that regulatory spending actually rose an inflation-adjusted 31 percent during the Bush administration (FY2002-FY2009):

Similarly, regulatory staff jumped by 42 percent under Bush’s watch:

Regulatory Spending Actually Rose under Bush is a post from Cato @ Liberty - Cato Institute Blog

A former White House speechwriter, Mark Thiessen, has jumped to the defense of his former boss, writing for the Washington Post that George W. Bush “established a conservative record without parallel.” Even by the loose standards of Washington, that is a jaw-dropping assertion. I’ve been explaining for years that Bush was a big-government advocate, even writing a column back in 2007 for the Washington Examiner pointing out that Clinton had a much better economic record from a free-market perspective. I also groused to the Wall Street Journal the following year about Bush’s dismal performance.

“Bush doesn’t have a conservative legacy” on the economy, said Dan Mitchell, a senior fellow at the libertarian Cato Institute. “Tax-rate reductions are the only positive achievement, and those are temporary … Everything else that has happened has been permanent, and a step toward more statism.” He cited big increases in the federal budget, along with continuing subsidies in agriculture and transportation, new Medicare drug benefits, and increased federal intervention in education and housing.

Let’s review the economic claims in Mr. Thiessen’s column. He writes:

The thrust of their argument is that Bush expanded the size of government dramatically — and they are absolutely right. Federal spending grew significantly on Bush’s watch, and this is without question a black mark on his record. (Federal spending also grew dramatically under Ronald Reagan, though he was dealt a Democratic Congress, whereas Bush had six years of Republican leadership on Capitol Hill.)

Since federal spending almost doubled in Bush’s eight years, it’s tempting to summarily dismiss this assertion, but let’s cite a few additional facts just in case someone is under the illusion that Bush was on the side of taxpayers. And let’s specifically compare Bush to Reagan since Mr. Thiessen seems to think they belong in the same ball park. This article by Veronique de Rugy is probably a good place to begin since it compares all Presidents and shows that Bush was a big spender compared to Reagan…and to Clinton. Chris Edwards has similar data, capturing all eight years of Bush’s tenure. But the most damning evidence comes from the OMB’s Historical Tables, which show that Reagan reduced both entitlements and domestic discretionary spending as a share of GDP during his two terms.  Bush (and I hope nobody is surprised) increased the burden of spending in both of these categories.That’s the spending side of the ledger. Let’s now turn to tax policy, where Thiessen writes:

Bush enacted the largest tax cuts in history — and unlike my personal hero, Ronald Reagan, he never signed a major tax increase into law.

Using the most relevant measures, such as changes in marginal tax rates or comparing the impact of each President’s tax changes on revenues as a share of GDP, Bush’s tax cuts are far less significant than the Reagan tax cuts. But there presumably is some measure, perhaps nominal revenues over some period of years, showing the Bush tax cuts are larger, so we’ll let that claim slide. The more relevant issue to address is the legacy of each President. Reagan did sign several tax increases after his 1981 Economic Recovery Tax Act, but the cumulative effect of those unfortunate compromises was relatively modest compared to the positive changes in his first year. When he left office, he bequeathed to the nation a tax code with meaningful and permanent tax rate reductions. The Bush tax cuts, by contrast, expire at the end of this year, and virtually all of the pro-growth provisions will disappear. This doesn’t mean Bush’s record on taxes was bad, but it certainly does not compare to the Gipper’s. But what about other issue, such as trade? Thiessen writes:

Bush enacted free-trade agreements with 17 nations, more than any president in history.

Those are some positive steps, to be sure, but they are offset by the protectionist moves on steel and lumber. I’m not a trade expert, so I don’t know if Bush was a net negative or a net positive, but at best it’s a muddled picture and Thiessen certainly did not present the full story. And speaking of sins of omission, his section on health care notes:

Bush created Health Savings Accounts – the most important free-market health-care reform in a generation. And he courageously stood up to Congressional Democrats when they sought to use the State Children’s Health Insurance Program (SCHIP) to nationalize health care — and defeated their efforts.

Conveniently missing from this analysis, though, is any mention of the utterly irresponsible prescription drug entitlement. There is no doubt that Bush’s net impact on health care was to saddle America with more statism. Indeed, I’d be curious to see some long-run numbers on the impact of Bush’s prescription drug entitlement and the terrible plan Obama just imposed on America. I wouldn’t be surprised to find out that the negative fiscal impact of both plans was comparable. Shifting gears, let’s now turn to education policy, where Thiessen writes:

Bush won a Supreme Court ruling declaring school vouchers constitutional and enacted the nation’s first school-choice program in the District of Columbia.

Bush deserves some credit on school choice, but his overall education record is characterized by more spending and centralization. Thanks in part to his no-bureaucrat-left-behind plan, the budget for the Department of Education grew significantly and federal spending on elementary, secondary, and vocational education more than doubled. Equally worrisome, federal bureaucrats gained more control over education policy. Finally, Thiessen brags about Bush’s record on Social Security reform:

Bush fought valiantly for a conservative priority no American president had ever dared to touch: Social Security reform, with private accounts that would have given millions of our citizens a stake in the free market system. His effort failed, but he deserves credit from conservatives for staking his second term in office on this effort.

This is an area where the former President does deserve some credit. So even though the White House’s failure to ever put forth a specific proposal was rather frustrating, at least Bush did talk about real reform and the country would be better off today if something had been enacted.

This addresses all the economic claims in Thiessen’s article, but we can’t give Bush a complete grade until we examine some of the other issues that were missing from the column. On regulatory issues, the biggest change implemented during the Bush year was probably Sarbanes-Oxley — a clear example of regulatory overkill. Another regulatory change, which turned out to be a ticking time bomb, was the expansion of the “affordable-lending” requirements for Fannie Mae and Freddie Mac.

And speaking of Fannie and Freddie, no analysis of Bush’s record would be complete without a discussion of bailouts. Without getting too deep in the issue, the most galling part of what Bush did was not necessarily recapitalizing the banking system (a good chunk of which was required by government deposit insurance anyhow), but rather the way it happened. During the savings & loan bailout 20 years ago, at least incompetent executives and negligent shareholders were wiped out. Government money was used, but only to pay off depositors and/or to pay healthy firms to absorb bankrupt institutions. Bush and Paulson, by contrast, exacerbated all the moral hazard issues by rescuing the executives and shareholders who helped create the mess. Last but not least, let’s not forget that Bush got the ball rolling on auto-industry bailouts.

If all of this means Bush is a “conservative record without parallel,” then Barack Obama must be the second coming of Ronald Reagan.

Bush Was a Statist, Not a Conservative is a post from Cato @ Liberty - Cato Institute Blog

The BBC has put together an interesting documentary on the writ of habeas corpus, a legal concept most people have heard of, but too few understand and appreciate. You can stream it here.

We should not forget that President Bush and the coterie of lawyers around him tried to advance a theory of executive power that would have made the writ of habeas corpus worthless.  I hasten to add that President Obama has not really disavowed Bush’s claims and so the danger to the great writ has not passed just because Bush has left office.

Related video clip of former Attorney General Alberto Gonzalez here.  Related Cato work here, here,  and here.

The Great Writ is a post from Cato @ Liberty - Cato Institute Blog

That’s the finding by Federal Judge Vaughn Walker in a ruling made late yesterday.  As the news reports note, Obama’s lawyers came into court to defend Bush’s policy–so that’s two administrations acting contrary to law.

The ruling itself can be found here (H/T to the How Appealing blog).  For related Cato work, go here and here.

Bush Wiretapping Illegal is a post from Cato @ Liberty - Cato Institute Blog

The Office of Management and Budget has released the President’s FY2011 budget and the Congressional Budget Office has released its semi-annual Budget and Economic Outlook. Much of the coverage of these documents has focused on deficit numbers. This is not a trivial concern, particularly since the Bush-Obama policies of bigger government have dramatically boosted red ink.

But the most important numbers in the budget documents are the estimates of what is happening to government spending. The good news is that burden of government spending is projected to decline over the next few years from about 25 percent of GDP to less than 23 percent of GDP.

That’s the good news. The bad news is that federal government outlays only consumed 18.2 percent of economic output when Bush took office. In other words, notwithstanding the good news cited above, the size and scope of government has increased dramatically since 2001. The worse news is that the long-run spending forecasts show a cataclysmic expansion in the burden of government. The “optimistic” estimate is that the federal government will consume more than 30 percent of GDP by 2050 and 40 percent of GDP by 2080.

There Is Some Budget Good News, but It Is Actually Really Bad News is a post from Cato @ Liberty - Cato Institute Blog

Even though I’ve been in Washington for almost 25 years, I still get shocked by the deceit and double-talk that characterizes this town. A perfect example can be found in today’s Wall Street Journal, which features a column by Karl Rove attacking President Obama for fiscal incontinence. I’m a big fan of condemning Obama’s big-government schemes, but Rove is the last person in the world who should be complaining about too much wasteful spending. After all, he was the top adviser to President Bush and the federal budget exploded during Bush’s eight years, climbing from $1.8 trillion to more than $3.5 trillion. More specifically, Rove was a leading proponent of the proposals that dramatically expanded the size and scope of the federal government, including the no-bureaucrat-left-behind education bill, the two corrupt farm bills, the two pork-filled transportation bills, and the grossly irresponsible new Medicare entitlement program.

Not surprisingly, Rove even tries to blame Obama for some of Bush’s overspending, writing that “…discretionary domestic spending now stands at $536 billion, up nearly 24% from President George W. Bush’s last full year budget in fiscal 2008 of $433.6 billion. That’s a huge spending surge, even for a profligate liberal like Mr. Obama.” This passage leads the reader to assume that Obama should be blamed for what happened in fiscal years 2009 and 2010, but as I’ve already explained, the 2009 fiscal year started about four months before Obama took office and 96 percent of the spending can be attributed to Bush’s fiscal profligacy. Yes, Obama is now making a bad situation worse by further increasing spending, but he should be criticized for continuing Bush’s mistakes.

Rove then has the gall to complain that Obama is “…growing the federal government’s share of GDP from its historic post-World War II average of roughly 20% to the target Mr. Obama laid out in his budget blueprint last February of 24%.” Yet a quick look at the budget data shows that the burden of federal spending jumped from 18.4 percent of GDP when Bush took office to more than 25 percent of economic output when he left office. Even if the (hopefully) temporary bailout costs are not counted, Bush and Rove are the ones who deserve most of the blame for today’s much larger burden of government. It should be noted, by the way, that none of the new spending under Bush was imposed over his objection. He did not veto any legislation because of excessive spending.

Finally, Rove concludes by writing that, “After a year of living in his fiscal fantasy world, Americans realize they have a record deficit-setting, budget-busting spender on their hands.” I’m almost at a loss for words after reading this sentence. All during the Bush years, I would complain to people in the Administration about wasteful spending. It didn’t matter whether I was talking to people at the Office of Management and Budget, the Council of Economic Advisers, the Treasury Department, or the National Economic Council. They almost always expressed sympathy for what I was saying, and then complained that the decisions were being made by the “White House political people.”

There’s an old joke about chutzpah and it features a guy who murders his parents and then asks the court for mercy because he’s an orphan. Karl Rove has taken the joke to the next level, but there’s nothing funny about the consequences for America.

Karl Rove’s Hypocritical Call for Fiscal Rectitude is a post from Cato @ Liberty - Cato Institute Blog

Terrorists are named after an emotion for a reason. They use violence to produce widespread fear for a political purpose. The number of those they kill or injure will always be a small fraction of those they frighten. This creates problems for leaders, and even analysts, when they talk publicly about terrorism. On one hand, leaders need to convince the public that they are on the case in protecting them, or else they won’t be leaders for long. On the other hand, good leaders try to minimize unwarranted fear.

One reason is that we shouldn’t give terrorists what they want. Another is that fear is a real social harm, particularly when it is exaggerated. Stress from fear harms health. It causes bad decisions. For example, if people avoid flying and drive instead the number of added fatalities on the road will quickly surpass the dead from a typical terrorist attack. Most important, excessive fear causes policy responses that often damage the economy without much added safety. Measured in lives on dollars, reactions to terrorism often cost more than the attack themselves.

If leaders talk only about the danger of terrorism and everything they are doing to fight it, without putting danger in context, they may be on safe political ground, but they risk causing or prolonging groundless fear and encouraging all sorts of harmful overreactions. That is the Bush Administration’s counterterrorism record, in a nutshell. If leaders just say “calm down and worry about something more likely to harm you,” they will be butchered politically.

So a reasonable approach is to sound concerned but reassuring. You want to convince people that they are mostly safe without appearing complacent. I don’t like many of this administration’s counterterrorism policies, starting with Afghanistan, but thus far its communication about terrorism is far more sensible than the last administration’s. That includes the aftermath of this attempted Christmas Day attack.

The administration made it clear that it is unacceptable that a guy we just got warned about got onto a plane wearing explosives. But the President also said Americans should be generally confident in their safety from terrorism. He didn’t act as if this incident was the most important thing on his schedule this year or compare the Al Qaeda affiliate in Yemen to the Third Reich or what have you, exaggerating their capability and power. I wish he had gone further and said that detonating explosives smuggled on to a plane is tricky and that flying remains incredibly safe. (Jim Harper will soon have more to say here on the security failures and how to talk about them.)

In a different political universe, the President could describe the terrorist threat honestly. He would say that recent attempted terrorist attacks in the United States show more amateurism and failure than skill and success. He could add that we are fortunate that our greatest enemy, al Qaeda and its fellow-travelers, are scattered and weak compared the sorts of enemies we historically faced. He would sound more like Michael Bloomberg, who told New Yorkers that they had a better chance of being struck by lightening than killed by terrorists, after a particularly inept terrorist plot on JFK airport was uncovered. He could even quote Nate Silver, who calculates that in the last decade of US flights, there was one terrorist incident per 11,569,297,667 miles flown. It’s true, as Kip Viscusi demonstrates, that people don’t think like actuaries. They rightly value different sorts of deaths in different ways, and want more protection against terrorism than other dangers. But knowing the odds is still important in weighing the appropriate amount of concern and forming policy preferences. The president could also have treated voters like grown-ups and pointed out that whatever flaws in airline security that this attempted attack reveals, there is no such thing as perfect safety, and sooner or later even the finest security systems fail.

I also disagree with the argument that the trouble with our airline security or national security policy-making in general is insufficient presidential attention. Overall, we could do with a little more masterly inactivity in security policy, to use an old British phrase. Aviation security is another matter, but I struggle to see how presidential involvement would have fixed this problem. The 9-11 Commission did claim that September 11 occurred because leaders failed to pay sufficient attention to al Qaeda, but there, as in other matters, the Commission is wrong. At least in the executive branch, the attention paid to the threat in the 1990s was quite substantial, as you can see in this essay by Josh Rovner or in my contribution to this book. The historical record shows that the threat was well understood by security officials and the reading public. Time, for example, called Osama bin Laden the most wanted man in the world when they interviewed him in 1998. The trouble, in my opinion, was not misperception but our policies and the difficult and unprecedented nature of problem–a terrorist group ensconced in hostile country that refused to do anything about it.

Getting the line between confidence and vigilance right is not easy, but it starts with acknowledgment that there is such a thing as overreaction. That subject will be the on the agenda for our January 13 counterterrorism forum with James Fallows, State Department Counterterrorism Coordinator Daniel Benjamin, Paul Pillar and others.

*My attempts to explain this stuff to Politico yesterday resulted in some confused and inaccurate uses of my quotes in this story by Carol E. Lee, which unconvincingly compares the Obama’s response to this terrorist attempt to his silly involvement in the Henry Louis Gates arrest fiasco. First, Lee absurdly uses me as example of “predictable” attacks from the right on Obama, when I said I was glad that the President said Americans should feel confident but that I’d have preferred if he’d done it more forcefully by saying flying remains safe and al Qaeda weak. That is more or less the opposite of the predictable take on the right. Then, she says that my views on the President’s response to the attacks referred to his post-press conference golf outing. I was talking about his overall response, or lack thereof, over the last several days. I can’t decipher the meaning of presidential golf.

Talking about Terrorism is a post from Cato @ Liberty - Cato Institute Blog

This is not the change we hoped for. President Obama rose to power on the basis of his early opposition to the Iraq war and his promise to end it. But after a year in the White House he has made both of George Bush’s wars his wars.

Speaking of Iraq in February 2008, candidate Barack Obama said, “I opposed this war in 2002. I will bring this war to an end in 2009. It is time to bring our troops home.” The following month, under fire from Hillary Clinton, he reiterated, ”I was opposed to this war in 2002….I have been against it in 2002, 2003, 2004, 5, 6, 7, 8 and I will bring this war to an end in 2009. So don’t be confused.”

Indeed, in his famous “the moment when the rise of the oceans began to slow” speech on the night he clinched the Democratic nomination, he also proclaimed, “I am absolutely certain that generations from now we will be able to look back and tell our children that . . . this was the moment when we ended a war.”

Now he has doubled down on the war in Afghanistan and has promised to keep the war in Iraq going for another 19 months, after which we will have 50,000 American troops in Iraq for as far as the eye can see. If McCain had proposed this sort of minor tweaking of the Bush policy, I think we’d see antiwar rallies in 300 cities. Calling the antiwar movement!

President Obama’s promises are becoming less credible. He says that after all this vitally necessary and unprecedented federal spending, he will turn his attention to constraining spending at some uncertain date in the future. And he says that he will first put more troops into Afghanistan, and then withdraw them at some uncertain date in the future (“in July of 2011,” but “taking into account conditions on the ground”). Voters are going to be skeptical of both these promises to accelerate now and then put on the brakes later.

The real risk for Obama is becoming not JFK but LBJ — a president with an ambitious, expensive, and ultimately destructive domestic agenda, who ends up bogged down and destroyed by an endless war. Congress should press for a quicker conclusion to both wars — and should also remember the years of stagflation and slow growth that followed President Johnson’s expansion of the welfare state.

It’s the End of 2009. Where Are Our Troops? is a post from Cato @ Liberty - Cato Institute Blog