A Warning to Obama, And to the Rest of Us

by cactus

When Bush Went Wrong – A Warning to Obama, And to the Rest of Us

Just about everyone except the fighting (now) 20% regard GW as a failure. Hopefully, the next President won’t be a failure. Things are definitely going in the right direction – compared to eight years ago, real economic growth has been pitiful. Ditto real incomes for most Americans, and a host of other statistics have started turning around, from infant mortality to abortion rates. About the only thing growing rapidly is, predictably, the debt.

So where did GW fail? When should we have known?

My opinion – there is never one single warning sign. But you don’t have to watch very long for a pattern to emerge. But you do have to watch, because the President doesn’t come straight out and say “I’m a failure.”

I’ve posted on this before, but I’d like to revisit the process… and the moment, where I knew with absolute certainty we were in trouble with this guy.

But before any big earthquake, there are precursor shocks. The precursor here was the promise that we were going to get tax cuts, the economy was going to continue to grow, and the debt was going to get paid down. On the last day of February, 2001, the day before the recession would officially begin, GW released the economic blueprint for his administration. He told us among other things:

With the advent of surpluses, the United States has begun to make real progress in paying down its debt. During 1998–2000, debt held by the public fell from $3.8 trillion to $3.4 trillion—a $363 billion drop. By the end of this year, more than $200 billion in additional reduction is due to be achieved.

The President’s plan will accelerate this trend to record rates by retiring an historic $2 trillion in debt over the next 10 years. Under the President’s budget, the national debt will be only seven percent of Gross Domestic Product (GDP) in 2011, its lowest share in more than 80 years.

Indeed, the President’s Budget pays down the debt so aggressively that it runs into an unusual problem—its annual surpluses begin to outstrip the amount of maturing debt starting in 2007. This means that the United States will be effectively unable to retire any more debt than what is assumed in the Administration’s Budget over the next 10 years—the President achieves “maximum possible debt retirement” in his budget.

They stuck to the story line for quite a while… until what I like to call the moment of absolute bull$#!+. It came in 2002:

The War and Recession — Not the Tax Cuts — Drained the Budget Surplus

While some in Washington want to blame the tax cut for the declining surplus, the facts tell a different story:

The Recession Erased Two-Thirds of the Surplus: The recession and declining tax revenues drained roughly two-thirds of the budget surplus.

Homeland Security and War Spending Used 19% of the Surplus: Immediately following the terrorist attacks, President Bush and Congress rightly passed significant spending increases for the war against terrorism, homeland security, airline security, and emergency response. This necessary spending accounted for approximately 19% of the surplus.

The Tax Cut Only Used 15% of the Surplus: Despite the claims of some in Washington, the tax cut used less than 15% of the surplus.

Why is that a lie? I had a post on that:

In August 2001, with the recession more than half done, the Bush tells us that there’s going to be the second largest surplus in history. A year later, we’re informed that the recession drained 2/3 of the surplus away? What happened… the last stretch of recession was the tough part?

But let’s do some math, shall we? When the administration tells us that 2/3 of the lost surplus was due to the recession, what they’re telling us is that 2/3 of $330 billion, or $220 billion in reduced income was due to the 2 months of recession in FY 2002.

That year, according to OMB table 1.3, the gubmint collected 17.9% of GDP in taxes. I think its reasonable to assume they were surprised it was this low – so let’s say they figured on 20%, which is higher than they had any right to expect. That means… if taxes were $220 billion lower due to a recession, GDP was about 1.1 trillion lower than it would otherwise be. (If they assumed receipts were equal to 17.9% of GDP, that would mean the recession knocked off 1.235 trillion.)

The administration was basically saying that two months worth of recession removed over a trillion bucks from the GDP!! To understand the magnitude of that statement, consider that according to OMB Table 1.2, GDP at the end of FY 2002 was 10.377 trillion.

Which means that at the end of FY 2002, barring the two months of recession, GDP would have been equal to $1.1 trillion plus $10.377 trillion or about $11.477 trillion. That in turn means the (nominal) growth in GDP from the end of FY 2001 (GDP = 10.058 trillion) to the end of FY 2002 would have been… (11.477 – 10.058)/10.058, or about 14.1%. 14.1% growth??? 14.1% growth??? 14.1%!!!!!

You can fiddle with the assumptions a bit, and get that growth rate down to about 12%. But regardless… its a big number. A number that was impossible at the time. Perhaps GW didn’t know it, but folks like Glenn Hubbard and Mitch Daniels and the rest of the budget and economic staff at the administration had to know it was impossible. So either they were incapable of simple algebra, or they knew damn well they were putting forth an enormous lie.

And by the way – you didn’t have to work for the administration to know this was crazy. Anyone with any basic economic training should have spotted that immediately. Even without running numbers, it should have been obvious from that moment on that the administration was simply making $#!+ up. (Its truly incredible to me how many supposed economists didn’t, and kept supporting these guys for years after that.)
Anyway, the point is – the President and his staff shouldn’t have to say impossible things. If they promise us policy X will give us result Y, they should be able to either point to some recent point in American history when it did just that, or some recent instance where a similarly situated industrialized country did X and got Y. If a President’s policy is bull$#!+ and wishful thinking, it becomes obvious fast to anyone paying attention. Worse, it has consequences, and we will pay a big price down the line.

Our job is to pay attention, and call bull$#!+ when we hear it.

by cactus