The Budget Deficit
Terry Traub, 6/11/2009
Today's New York Times features an opinion piece by David Leonhardt on the current accounts deficit of the federal government and its causes. Typical for the NYT, Leonhardt heaps most of the blame on George W. Bush, and over 400 comments by readers just join in that pile-on.
But just how true is it that the policies of the Bush Administration are responsible for the huge and ongoing deficits we now face? Leonhardt concedes that some small percentage of the budget deficit is due to the huge stimulus package. I don't see how $700 billion is a small percentage of anything, but I guess greater minds than mine could explain it.
Leonhardt points out that the U.S. had huge budget surpluses near the end of the Clinton era, but he skips right over the fact that the surplus came from massive capital gains from the Dot Com bubble. It's only natural that the surplus would rapidly flip to a deficit as the bubble burst. There was no actual surplus during Clinton; it was a temporary side effect of the speculative excesses of the stock market and all of that funny money disappeared back into the black hole from whence it came.
Yet, the Democrats continue to argue, loudly and somewhat hysterically, that Bush owns the deficit. Yes, certainly a trillion or two can be ascribed to military spending for Iraq and Afghanistan.
But most of that military spending is stimulative; it goes to equipment procurement for American manufacturers and wartime salaries for American troops. Infrastructure spending that benefits foreign vendors such as Turkey--e.g., toilet paper and gasoline--is a rather trivial portion of the whole.
Arguably, Bush's wartime spending helped prop up the American economy by stimulating manufacturing. That combined with his broad tax cuts and refunds to the lowest tier of taxpayers may have staved off the inevitable recession that followed the dot com crash by several years. Indeed, for most of the Bush era, budget deficits were rather small.
It was only in 2008 that the over-extended mortgage industry and the derivatives business came crashing down. It should be noted that the Bush Administration several times urged a Democratic Congress to rein in Fanny Mae for making overly speculative loans, and each time it was rebuffed. Yet, in one of history's great ironies, the Democrats successfully laid the blame for the mortgage mess at Bush's feet, and thus they won the elections quite decisively.
I think history will show that Leonhardt and his ilk are nothing but partisans engaging in a bloodbath. The real macroeconomic trends are probably beyond any human's ability to understand completely, but we can be sure that no one president and no one political party can or should take the blame.
Unfortunately, Obama came flying into office on a reform chariot and his idea of reform is to spend even more money as only a liberal can. The very thought of reducing taxation and letting businesses create new jobs probably hasn't even occurred to him. At least Bush mouthed the words, although he certainly presided over an era of big government nonetheless.
I fear that we Americans are cursed with a kind of economic blindness that dooms us to these boom-and-bust cycles. Someone, let us say Netscape, sets off a technological revolution, in this case the World Wide Web, creating a frenzied period of speculative growth. Americans sit back and marvel at their own greatness as the money machine cranks up. Finally the economy has had enough and adjusts back down, and whoever's unlucky enough to be on top at the time gets blamed for the subsequent mess.
I do hope that some breakthrough comes along once again to pull us out of the current morass, but I'm not going to hold my breath waiting. At some point we have to get back to our roots and understand the vital role of business in our economy. Perhaps our children will rebel against the mediocrity that socialism brings, and we'll see a renewal some 20-30 years down the line.
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