George W. Bush = LBJ on Fiscal Policy

Deroy Murdock of the National Review gets something right!

On spending, LBJ’s Great Society seems greater than ever. Washington Republicans’ Spend-O-Rama famously included 13,997 pork-barrel projects that lodged like baby-back ribs in last year’s appropriations bills. President Bush’s $92.2 billion request for Iraq War and Hurricane Katrina funding has expanded to $109 billion after Senate manhandling. It now features such germane adornments as $6 million for Hawaiian sugar growers and $1.1 billion for private fisheries. Another $700 million would redirect train tracks that CSX Corp. invested $250 million to rebuild after Katrina; a replacement roadway then would link condos to Mississippi casinos.

Check out Murdock’s graph showing Federal spending as a share of GDP from 1993 to today, which shows this ratio declining throughout the Clinton years but rising ever since.

Under LBJ, we saw the 1964 tax cut, an increase in entitlement spending, and increased defense spending for the Vietnam War. Under George W. Bush, we’ve had tax cuts, the prescription drug benefit, and yes, the Iraq War. There may be one BIG difference, however. As early as December 1965, the LBJ Council of Economic Advisors (you know – those KEYNESIANS) were warning the President that fiscal policy had become too stimulative and that unless he either cut spending or raised taxes, the FED would either have to increase interest rates (which they did for a while in 1966) or watch inflation accelerate.

I would hope Bush’s CEA is telling him the exact same time. I would hope the CEA is saying words like “crowding-out” like the LBJ CEA were doing some 40 years ago. LBJ did not like the message but he went to Wilbur Mills and suggested a tax increase. But some supply-side goofball named Norman Ture told the Chairman of the House Ways and Means Committee back in 1966 that LBJ’s economists had no clue. But we know these Keynesian economists were right.

The difference between 1966 and 2006 is this – the supply-side goofball this time around happens to be the President. Thank goodness, the FED is not buying the free lunch garbage of those who worship Norman Ture. Alas, the interest rates will cause crowding-out of investment and less long-term growth. I just hope Mr. Murdock can get this message to those supply-side goofballs at the National Review.

Update: While I’m praising NRO stuff, let me say yes sort of to what Ramesh Ponnuru said on the progressivity debate:

The income tax has gotten more progressive, but not necessarily the “tax system” generally. Since income taxes are more progressive than payroll taxes, cutting income taxes but not payroll taxes makes the system as a whole less progressive. This observation is usually made by people who aren’t really interested in lightening the load of the payroll tax, but it’s still true.

The partial yes is that Ramesh is trying to inject the total tax bite. But Ramesh – if the Federal government cut payroll taxes but not Social Security benefits but rather used income taxes to help fund the Trust Fund – I bet a lot of liberals would love that proposal. Oh wait – your crowd wants to cut benefits but keep payroll taxes high in order to bail out the General Fund mess created by the 2001 and 2003 tax cuts.