And While We're On the Gipper...
Even before seeing the video Claire posted, the Gipper was on my mind this morning. Glancing at the New York Times--as I explained yesterday, I still can't help myself--I noticed that the lead story concerned what the Times has taken to calling "President Obama's debt reduction commission." "Delaying Vote," the headline reads, "Debt Panel Splits on Taxes and Spending." Briefly put, the story suggested that the co-chairmen of the commission, former Clinton chief of staff Erskine Bowles and former Republican senator Alan Simpson, have produced a reasonable approach to reducing the massive deficit, but are still struggling to win the support of any of the commission's Republican members of Congress, who include include Congressmen Paul Ryan and Jeb Hensarling.
What did the little voice in my head pipe up to say? "Good for Ryan and Hensarling. Ronald Reagan would have approved."
How so? Because Ronald Reagan always--always--understood that reducing the federal deficit isn't the point. The point is to promote economic growth.
Reminding myself of the Reagan era statistics, I found this passage in my book about the Gipper:
During the campaign of 1980, Reagan had promised to cut taxes, not hike them. But he had also promised to boost defense spending and reduce the budget deficit. Then the recession [of 1891 to 1982] struck. When making good on all three of his campaign promises had become a mathematical impossibility, Reagan had chose to make good on only the first two, cutting taxes and boosting defense spending while permitting deficits to mount....
During his eight years in office Reagan added a total of $1.4 trillion to the federal debt. Yet what did he get in return? A military buildup that prompted the collapse of the Soviet Union and an economic expansion that raised incomes across the United States while creating some eighteen million new jobs....By the time Reagan left office, indeed, the value of aset in the United States--stocks, land, patent rights, and so on--had increased by $17 trillion, an amount twelve times bigger than the amount Reagan had borrowed.
World peace plus a return of twelve to one. Not bad, I've always felt.
As Steve Manacek pointed out here on Ricochet a couple of weeks ago, the Bowles-Simpson proposals would indeed do away with the federal deficit--but leave us with taxes and spending at a much higher share of our GDP than they have ever been in our peacetime history, which in turn would of course permanently dampen economic growth. Ryan and Hensarling won't have it. They just won't. Growth--they understand that growth, not deficit reduction in and of itself, must be the aim, and they're willing to stand their ground, no matter how infuriated Erskine Bowles, Alan Simpson, or the New York Times become.
Reagan would have loved 'em.
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Re: And While We're On the Gipper...
The Republicans on the commission should stick to their guns. Raising taxes does not always bring in more money -- not if it depresses economic growth. What is needed is a radical reduction of federal (and state) spending -- which means that what Obama has done has to be reversed. That needs to be done -- and more. First, we should roll back spending to the level of 2008; then, we should eliminate all subsidies of every kind (not just those for ethanol). And finally we should eliminate programs that do not properly fall within the purview of the federal government. I would suggest that we start by abolishing the Department of Education and eliminating all federal expenditures on education not related to defense. The same can be said for the Department of Health and Human Services. Their functions are prerogatives of the states and the localities.
Jun '10
Re: And While We're On the Gipper...
Peter, while admitting I'm a neophyte on these types of topics, are you suggesting that debt/deficit should never be a driving force, or just one that should be held in less regard than growth? I get that sustained economic growth (cyclical though it may be) is the ideal long term trend. But I do think there comes a point when you cannot ignore the negative contribution of long term deficits and its impact on debt.
I tend to think that budgets should be based on revenue projections. If those projections are lower (as they would be in a slower economy), then the budgets should be adjusted lower accordingly. Instead, our government does it backwards by setting a budget, and finds ways to force the revenue to meet those targets - through higher taxes or deficit spending.
I want to grow my net worth - but my net worth won't grow if I allow my debt to grow unabated. So yes, I agree growth is the aim, but I see continued deficit spending as an inhibitor to that growth.
President Reagan had different priorities to be sure. But is this the right parallel to make for our current crisis?
Re: And While We're On the Gipper...
What I mean, Jim Chase--and what Nobel Prize-winning economist Gary Becker confirmed when I interviewed him for Uncommon Knowledge a couple of weeks ago--is that economic growth is the end. Managing the budget--including controlling spending and the deficit--is merely the means.
Were we to do just what Bowles and Simpson have proposed, we'd end up with a permanently bigger government--and less economic growth. Ryan and Hensarling see that. And thank goodness.
Oct '10
Re: And While We're On the Gipper...
Apparently that's the way public institutes of higher learning do it as well, with higher taxes being higher tuition...
I will concede I am a neophyte as well so I have some probably basic, naive questions. How does the elimination of subsidies play into this entire picture? One of the proposals from health care debates from the Republicans was to allow insurance across state line. If that is not the case now, how is there interstate commerce that would be under discretion/direction by the federal government? Jim makes a good point. Yes we saw a twelve to one ROI (plus world peace, Peter), but after that boon, where is the voice saying "while the getting's good" lets take care of these loose ends (debts)? How does Hong Kong succeed with low taxes?
Sep '10
Re: And While We're On the Gipper...
The US is so much less a free actor today than it was during my youth. In the 50s and 60s, it didn't matter to us what the wages were in China compared to the US. And no one was a significant competitor for oil and minerals - or food, for that matter. There was no competitor for American manufacturers. But competition began to show up in the 70s and has grown, maybe even accelerated. In a way, except for the Cold War - and that's a big exception of course - the rest of the world didn't much influence us. But that's all changed now, and I don't see that we, right or left, have come to grips with it. I can't prove it of course, but these last 30+ years have the feel of an inflection in our trajectory. Maybe the old shibboleth "we'll grow our way out of it" is not quite so applicable.
Sep '10
Re: And While We're On the Gipper...
My comment here is in no way supportive of federal expenditures on education. Rather it's on state expenditures. Here in NM the new governor faces a large budget gap for the 2011 year. Since the stimulus funding is no more, there will have to be real, as opposed to sham, cuts in school budgets. To me, real means that classroom education is going to suffer. Since Ms. Martinez is a Republican we can be hopeful that the state bureaucracy will be whacked more than would have been the case with Bill Richardson. Nonetheless it's likely that cuts in the classroom will be necessary. I don't like that and am willing to pay more state taxes. There, I've said it.
Jun '10
Re: And While We're On the Gipper...
I heard that podcast, and enjoyed it as I do all of them. And I don't mean to suggest that the Bowles/Simpson plan is a good one by any stretch. Ryan's roadmap is much closer to where I think the conversation should begin than anything this so-called debt commission can come up with. The deficit "solution" is simple: don't spend more than your available revenue. The "problem" is the monster of entangled legislation our entitlement system has become.
We need to create the conditions for growth, and for that we need less government involvement and regulation. But we can't get government out of the way without addressing the deficit and debt issue. Any growth that occurs without smartly managing the budget is a false growth, another bubble waiting to burst. Growth is undeniably the "end" we should aim to achieve. I simply think that adding fiscal soundness is also a worthy end.
Oct '10
Re: And While We're On the Gipper...
What happens when Congress borrows abroad? Tell me, what does that do to the international value of the dollar, our national competitiveness, and diplomatic independence?
Deficits stimulate the exporters of other nations. This is why we've gone from bubble to bubble; our economy is fundamentally uncompetitive while running a balance of payments deficit (to fund Congress's deficits), and this has got to end.