Wednesday Links
- Cato experts will live-blog Obama’s State of the Union Address tonight. Join in, submit questions, and watch the speech right here on Cato@Liberty at 9:00 PM EST.
- A quick, ten-point libertarian State of the Union Address.
- One “Great Canard”: Federal Reserve Chairman Ben Bernanke argues that the Fed’s monetary policy was not responsible for the U.S. housing bubble.
- Podcast: “Obama’s Fiscal Right Fake” featuring Chris Edwards.
Obama to Find Budgetary Sobriety?
The White House is hinting that its fiscal year 2011 budget due out in February will be “austere.” White House Press Secretary Robert Gibbs didn’t provide any specifics but recently said that “it will not look as it has in the past.” Well that’s a relief because the FY2010 appropriations process finally wrapped up and spending continues to be anything but austere.
The “minibus” appropriations bill signed by the President last week jacked up funding by a combined 8 percent for programs ranging from education to housing to transportation. And that’s at a time when inflation is low. Further, funding hasn’t been passed yet for the president’s recently announced troop surge in Afghanistan, which will cost around $40 billion per year.
President Obama will be probably be announcing in his new budget a FY2010 deficit that’s even larger than FY2009’s massive $1.4 trillion deficit. He’s blowing the bank on his stimulus bill, giant health care bill, and large increase in FY2010 appropriations. He’s also looking at the polls, which show his plunging popularity and rising concerns over federal spending and debt.
He’s got to pretend to introduce an “austere” budget for his political survival and the political survival of Democrats up for election next year. That’s why I’m wondering whether the Democrats are purposely jacking up FY2010 spending so high so that they can show a freeze or even “cuts” for FY2011.
Taxpayers need to consider any such austerity budget in the context of the massive increase in discretionary spending over the past decade. In FY2000, total discretionary spending was $615 billion. So if FY2011 discretionary spending is just half of the decade’s average annual increase of 8.7%, total discretionary spending will be $1.474 trillion. If Obama imposes a hard freeze for FY2011, discretionary spending will still be about $1.412 trillion, still far more than double the level a decade ago.
George W. Bush: Biggest Spender Since LBJ
The Congressional Budget Office has released final budget numbers for fiscal year 2009. The numbers allow us to take a last look at the Bush administration’s record on spending from a statistical point of view.
The following three charts show annual average real (or constant dollar) outlays during the tenures of recent presidents. Presidents were in office for either 4 or 8 budget years, except JFK (3 years), LBJ (5 years), Nixon (6 years), and Ford (2 years).
President George W. Bush’s last year was fiscal 2009. Outlays that year were $3.522 trillion, according to the CBO. However, $108 billion was spending for the 2009 economic stimulus package passed under President Obama. Bush was thus roughly responsible for $3.414 trillion of spending in 2009, which includes outlays for the financial bailouts enacted under his watch. (For FY2009, $154 billion for TARP and $91 billion for Fannie and Freddie).
Spending in Bush’s first year (FY2001) was $1.863 trillion, thus he presided over an 83-percent increase in overall federal spending, which includes defense, domestic, entitlements, and interest. Even without TARP and Fannie/Freddie, spending was up a huge 70 percent under Bush over eight years. By contrast, total spending under eight years of President Clinton increased just 32 percent. These are the overall increases in nominal dollars.
Now let’s look at the real annual averages. Figure 1 shows the average increase in total spending under recent presidents. Bush II was the biggest spender since LBJ. His spending increases were far larger than the three prior presidents.
Of course, presidents share spending power with Congress and it is easier for presidents to control discretionary spending than entitlement spending. Nonetheless, the results in these charts reflect the general spending approach taken by the presidents quite well. For example, Bush II was instrumental in adding the Medicare drug benefit, which by 2009 was adding more than $60 billion a year to federal spending.
Figure 2 shows total federal spending without interest payments. Presidents have the least discretionary control over interest. The biggest spenders by this measure were again LBJ and Bush II. Note that Bush’s record by this measure is worse than in Figure 1. That is because Bush lucked out with relatively low interest rates on the federal debt and relatively low amounts of federal debt because of four years of surpluses under President Clinton.
For Figure 3, I took out both interest payments and defense spending from the totals. So spending includes domestic discretionary spending and so-called entitlement spending–in other words, mainly spending on the growing federal welfare state. By this measure, Eisenhower, JFK, LBJ, and Nixon had awful records. These were the years of massive creation and expansion of federal subsidy programs for the elderly, state governments, and many other groups. By the late-1970s, the creation of new programs had slowed but existing programs continued to grow.
The 1980 election of Ronald Reagan represented a revolt against the rapidly expanding welfare state. His record shown in Figure 3 of just 1 percent real spending growth over eight years was impressive, at least relative to the other presidents of the last half century.
What about Bush II? Figure 3 shows that he was the biggest domestic spender since Nixon. He set the stage for the explosive spending growth we are seeing under President Obama. Big spending was a key cause of Bush’s failure as president both economically and politically, and it is proving just as damaging and unpopular under President Obama.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
GOP 99% Socialist
As I note in my New York Post op-ed today, Republicans are fond of implying that President Obama is a big-spending socialist. But the House GOP recently offered a spending cut plan that was able to find savings worth less than one percent of Obama’s budget.
As Tad DeHaven and Brian Riedl have also pointed out, the GOP spending reform effort is rather pathetic. It proposed specific annual budget cuts of about $14 billion per year.
Consider that the center-left budget wonks at the Brookings Institution put their heads together a few years ago and came up with a “smaller government plan” that proposed about $342 billion in annual spending cuts (by 2014). The Brookings authors note:
These cuts are achieved by reducing government subsidies to commercial activities ($138 billion); by returning responsibility for education, housing, training, environmental, and law enforcement programs to the states ($123 billion) . . . by cutting entitlements such as Medicaid, Social Security, and Medicare ($74 billion); and by eliminating some wasteful spending in these entitlement programs ($7 billion).
Thus, the Brooking’s scholars found cuts more than twenty times larger than the House GOP leadership cuts, and Brookings proposed its plan back when the deficit was about one-fifth of the size it is today. (Note that both the Brookings and GOP plans would also put a cap on overall nondefense discretionary spending, in addition to these specific cuts).
My point in the New York Post piece is that the GOP needs to challenge Obama’s big spending agenda at a more fundamental level. They need to do some careful research, pick out some big spending targets, and go on the offense. Why not propose to eliminate the Departments of Education and Housing and Urban Development? Why not sell off federal assets, such as the Tennessee Valley Authority, in order to help pay down the federal debt? Why not open up the U.S. Postal Service to competition?
Obama won’t agree to these reforms at this point, but they would hopefully open a serious national debate about reforming our massive and sprawling federal government. Ronald Reagan in 1980 and the congressional Republicans in 1994 didn’t win by splitting hairs with the Democrats over 1% of spending. They offered a more fundamental critique.
At least, GOP leaders need to offer up spending reforms as bold as those of the Brookings Institution.
The GOP Is Not Serious about Cutting Down Spending
A month ago, President Obama issued a list of proposed spending cuts that I dismissed as “unserious” due to the fact that they were trivial when compared to his proposed spending and debt increases. Today, the House Republican leadership released a list of proposed spending cuts.
I’d love to say I’m impressed, but I can’t.
Both proposals indicate that neither side of the aisle grasps the severity of the country’s ugly fiscal situation, or at least has the guts to do anything concrete about it.
The GOP proposal claims savings of more than $375 billion over five years, the bulk of which ($317 billion) would come from holding non-defense discretionary spending increases to no more than inflation over the next five years.
First, it should be cut — period. Second, non-defense discretionary spending only amounts to about 17% of all the money the federal government spends in a year, so singling out this pot of money misses the bigger picture. At least, defense spending, which is almost entirely discretionary, should be included in any cap. But it has become an article of faith in the Republican Party that reining in defense spending is tantamount to putting a white flag in the Statue of Liberty’s hand.
The second biggest chunk of savings would come from directing $45 billion in repaid TARP funds to deficit reduction instead of allowing the money to be used for further bailing out. That’s a sound idea as far it goes, but I can’t help but point out that the signatories to the document, House Republican Leader John Boehner and Minority Whip Eric Cantor, voted for the original $700 billion TARP bailout. Proposing to rescind the Treasury’s power to release the remaining funds, about $300 billion I believe, should have been included.
According to the proposal, the rest of the cuts and savings comes out to around $25 billion over five years. Like the specific cuts in the president’s proposal, they’re all good cuts. But the president detailed $17 billion in cuts for one year and I generously called it “measly.” What am I to call the House Republican leadership specifying $5 billion a year in cuts?
Slashed?
The Hill is reporting that Senate Budget Committee Chairman Kent Conrad (D-ND) “has slashed Obama’s proposed increases in domestic discretionary spending from 12 percent to 6, according to lawmakers who met with Conrad.”
Unemployment is rising, businesses are failing, and folks are truly “slashing” their spending habits. But in Washington, to “slash” means to increase spending 6% instead of 12%. I’m sure most hard-working Americans — the poor stiffs whose taxes will pay for this “slash” — wished their budgets were in line for a 6% increase this year.
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