Following World War II, there were two things that kept the U.S. budget deficit under control: the fiscal responsibility of the Republican Party (and conservative Democrats) and fear of inflation.
For Republicans, deficits were the greatest sin of government. President Herbert Hoover even made the Depression worse by trying to balance the budget. Democrats correctly argued for deficit spending during recessions, but until the Clinton administration, they ignored the other principle of Keynesian economics that required surpluses during good times. One of the reasons the country faces grave fiscal problems today is that during the Bush administration, Republicans abandoned their commitment to fiscal responsibility by instituting tax cuts, embarking on two costly wars and passing a government- subsidized prescription drug plan (Medicare D) without paying for it. They never tried to balance the budget.
Normally, inflation would have resulted from these deficits and easy money policies, as it did during most of the postwar period. Wages and prices would go up until the Federal Reserve Board cut the money supply, bringing about a recession.
What was different in this crisis was the lack of inflation in response to deficit spending. Some credited the Federal Reserve for this miracle, but a more substantial reason was globalization. Cheap imports kept prices down, and the fear of losing jobs to outsourcing kept wages from rising. The Chinese were happy to lend us money; so interest rates did not go up, even though consumers and the government were both spending beyond their means.
Inflation appears to have been channeled into the one area unaffected by globalization: housing. When housing prices went up, we did not call it inflation; we thought we were getting richer, at least if we owned a home. Home equity loans let us tap this ephemeral wealth. When the housing market collapsed, it brought everything down with it.
Where do we go from here? During a recession you do not try to balance the budget. But there has to be a realistic long-term strategy for paying down some of our debt. Let no one fool you. Deficit reduction is going to be extremely painful. There is no easy solution. The administration’s deficit-reduction plan is a bare beginning. As a nation, we were irresponsible and foolish, and now we are going to have to pay for it. Nothing can be exempt from budget cuts, whether it be Social Security, Medicare or spending on defense and education. Tax increases must be on the table.
Congress appears to be incapable of dealing with long-term problems, like the deficit or global warming. Our constitutional system of checks and balances makes it much easier to stop something than to do something. Every member fights for his or her district, interest group or campaign contributor. With members unwilling to take the long view and sacrifice for the common good, Congress is gridlocked (see our editorial, “Dysfunctional,” 2/15).
One way out of the current impasse would be to create a statutory commission with the authority to draw up deficit reduction legislation that must be voted up or down by a majority in Congress without amendment. Legislation enacted under such constraints would give legislators cover to do what is right but painful. Members could tell their constituents and donors that there was no way to save their slice of the pie. Unfortunately, the Senate rejected such a commission in January without offering any other way toward fiscal responsibility. In response, the president announced that he would appoint a commission by executive order, but it would have the power only to make recommendations and thus could prove ineffective. The House, however, where tax bills constitutionally originate, should try to give the president’s commission a congressional mandate.
Earlier generations of Americans were willing to make difficult decisions to ensure a brighter future for their children. As a nation, they sacrificed and paid taxes to build infrastructure and win wars. What is missing in the country today is this sense of responsible patriotism, which recognizes the obligation to make such sacrifices. Instead we have spent and consumed with insufficient attention to how our habits would affect future generations. No doubt, wage stagnation played a role too, as middle-class homeowners sought additional income from their homes. Yet we cannot exempt ourselves from the responsibility to address the crisis at hand.
It is easy to blame the gridlock in Washington on politicians, but unless politicians hear from the American people that they are willing to make sacrifices for the future of their children and the nation, then the gridlock will continue until the country finds itself in economic freefall.
Somehow Catholics started schools, opened hospitals and supported institutions such as Caritas International, Catholic Charities, etc., without government funding. Non-Catholics also have a history of doing quite a bit without government funds (or political leadership).
Yes, "we cannot exempt ourselves from the responsibility to address the crisis at hand" and "It easy to blame the gridlock in Washington on politicians" though I think these two observations are logical extensions of the February 15 editorial on our dysfunctional government. Is there not a lot more to America than government?
What would happen if we concentrated on what private enterprise, individuals and non-governmental organizations might do independent of government?
"One way out of the current impasse would be to create a statutory commission with the authority to draw up deficit reduction legislation that must be voted up or down by a majority in Congress without amendment."
Utter nonsense. We already have Dodd and Frank, two architects of the Fannie and Freddie housing debacle in charge of congressional handling of the crisis (like setting the fox to guard the hen house ), while the proposal of a profligate reckless spending Congress backed fiscal commission to set the country on a sound fiscal policy is the same as hiring Willie Sutton to guard the bank vault. What is needed is a complete change of thinking,
-term limits are an absolute necessity for Congress.
- understand and enact a binding resolution that states "The federal government is not responsible for taking care of every social, economic, education and day-to -day living condition of each and every citizen."
-enact legislation that states "the federal government is forbidden to own, manage or operate a private incorporated company or to bind today's and future taxpayers by guaranteeing the debt of private, incorporated companies.
-the federal government's duties and responsibilities are spelled out in the US Constitution and they don't call for building airports for Murtha(God rest his soul) or the billions spent on similar earmarks and make-work projects
- as almost 50% of wage earners pay no federal income tax and most receive welfare in the form of tax credits or other benefits everyone should be required to provide financial support to the government as they have no interest in holding down spending.
-There is no record of any governmental run program that has created jobs in the private sector but burdensome regulatory powers have swollen the taxpayer funded bureaucrats on the public sector payrolls at an unprecedented rate.
There is a simple way for Congress to hear from the American people. Require that all government bond sales be limited to purchase by USA citizens. I think that would provide a wake-up call.
Although this editorial calls President Bush's response to Afghanistan and the Taliban an "embarkation," the idea being that we could have simply done nothing and allowed further plans to blow up our cities, airliners, etc as an alternative, or for that matter that we could simply watch genocide and the attempt to throttle our oil lifelines, as if Iraq was merely an adventure against a benign state, or that the problem with our deficit was caused by a tax reduction that resulted in the largest revenue for a state during Bush's administration in the history of the world for a similar period of time, I agree with the premise that Bush did a poor job with the deficit. He deserves a D-minus at best.
Thus far, President Obama is coming in at about a Q. And that's grading him on the curve.
Ref. your March 1 st editorial. How do we reduce our debt? First stop spending! Stop creating more federal agencies and fiefdoms like special czars. President Obama is spending like a drunken sailor espically to reward favored special interest groups. Eliminate all earmarks and cut federal programs and agencies which no longer serve the purpose for which they were created. Do we still need a Rural Electrification Agencey?
A statutory commission is no better than President Obama's task force which is nothing more than a cover to raise taxes. We need leaders who lead and who listen to the people. It all has to go through them anyway.
Prevent inflation? Increase productivity by cutting all the monstrous red tape and regulations which are strangling the private sector. The wealth that has been created in this country did not come from government. It was created by free people and entreprenures despite politicians that demagaued their success. Elect leaders who understand this.
Once again even the prophetic Cathollic media have drunk the kool-aid and most of the commenters above echo the tea party agenda - no new taxes and blame it all on Obama (for doing nothing, or for doing too much - which is it?). Health care reform could save hundreds of billions, including Medicare and Medicaid costs. Investing now in infrastructure and creating jobs will bring us back out of the depths of this recession/depression. Regulating the excesses of the Wall Street casino and banks will bring stability and some degree of reliability to pensions, investments, IRAs and 401K accounts.
A sensible progressive income tax, stability in local property values, and targetted tax credits (for job creation, technology reinvestmenty, energy efficiencies) all are worthy goals. We need to stop the bickering and blaming and begin to work together as statesmen and in mutual respect. Otherwise, we are simply toast!
To parse Deacon Evans' comment several things are necessary, the first being a definition of "sensible progressive income tax" since he apparently considers the tax codes wherein 50 percent of US wage earners already pay 97 percent of the US Treasury's income tax revenue and in New Jersey 1.0(one) percent of wage earners pay 40 percent of the New jersey tax collection are not sufficiently progressive. Corporations already pay the highest tax rates in the developed world but that is apparently not sufficiently progressive. In effect in the USA and in most States at least 50 percent of wage earners pay no income tax and already receive welfare in various tax credits, medicaid, food stamps, SSI and various other programs. Second the almost 3,000 page Obamacare bill is not even available for review so it is impossible to know if it "could save hundreds of billions" and most analysts suggest that the bill contains major tax increases, major cuts in medical care for seniors, children and provides funding for abortions in one form or another and is projected to run tens of billions dollars in the red for years. Not much savings there. Third the government has no record of successfully creating private sector jobs but is successful in adding tens of thousands of bureaucratic taxpayer funded public sector jobs to oversee and manage government mandates and complicated federal regulations which burden individual taxpayers and industry. Obama took office promising change and no one had the courage to ask him what change and so he is making every effort to create the USSA as Norman Thomas , the long time Socialist party Presidential
candidate predicted:
"The American people will never knowingly adopt Socialism. But under
the name of 'liberalism' they will adopt every fragment of the Socialist
program, until one day America will be a Socialist nation, without
knowing how it happened."
You have got to be kidding.
Since 1949 there have been 15 Presidential terms, 9 Republican and 6 Democratic. In 6 of the 9 Republican terms debt as a ratio of Gross Domestic Product grew. In 5 of the 6 Democratic terms the debt declined. The only increase under Democratic Presidents was in Bill Clinton's first term.
By tenure, the largest increases in gross debt relative to GDP, to date, occurred under Geroger H.W. Bush (+11.2%), George W. Bush (+11.9%), and Ronald Reagan (+15.5%).
On January 19, 2001 the day before George W. Bush became President the Debt stood at $5.7 Trillion. On January 20, 2009, the day he left office it stood at $10.6 Trillion. The actual growth in debt under this "fiscally responsible" Republican President was $4.899 Trillion.
For the past 30 years, Republican presidents have been in the Oval Office except for the 8 years of the Clinton Presidency. During this time national debt as a percentage of gross Domestic Product grew from approximately 35% to 70%. The only time it decreased during the 30 years was during the Clinton years.
I think you have been listening to Republican talking points instead of checking the facts. I would encourage you to check out National Debt by Presidency at Zfacts.com. There is also interesting comparison data at National debt by U.S. presidential terms on Wikipedia, The Free Encyclopedia.
I'm not sure to whom Mr. McCormick addressed his "you've got to be kidding" comment regarding, among other things, President Bush's record on the deficit. I graded him a D- in my comment above. That is not only substantially lower than Bush's mediocre grade point average at Yale, it is even lower than John Kerry's.
You mention correctly that only in President Clinton terms in recent times was debt as a percentage of GDP lowered. Very true. But bear in mind it was only after it was clear that his spending agenda was defeated, that in his original term, which saw an increase in the debt numbers, was taken over by a house and senate led by Gingrich and the Contract for America phenomenon, that Clinton turned things around. Bill Clinton saw the handwriting on the wall and changed. This change overcame his first term deficit and led to a positive 2 term figure. He, like President Obama, was a bright and articulate president. Unlike Obama, he was also an experienced and skilled politician with no socialistic agenda.
President Reagan, who saw the threat of the Soviet Union as the greatest threat to the life and prosperity of America and other nations, spent a lot of money to repair the neglect of the armed forces, and he also had to get the cooperation of Tip O'Neil and a house and senate he did not control in his second term, but he did deliver a few benefits: O'Neil and Reagan supported the Greenspan commission which kept SS solvent for a generation longer, and with Bradley's support closed tax loopholes and cut tax rates for all with the savings, and generally gave us a prosperous, employed America, with Jimmy Carter's misery index cut by more than half and the average American 17% wealthier in adjusted dollars than when he began. He left office the most popular two-term president in half a century, even thought the fall of the Berlin Wall and the freedom of 20 or so nations and 50 million people, which he along with John Paul II and Margaret Thatcher asssited Walensa in causing, came a few years later.
And Clinton, partly (perhaps largely) because of his hand being forced by Gingrich, passed the most important welfare reform act of our lifetime, ending welfare as a life-long entitlement that nurtured an underclass. Unlike Reagan or Obama, Clinton could actually present a good speech without a teleprompter. Although he did make a disastrous error with revoking Glass Steagal, he set the agenda which I hoped we would follow by announcing in 1996, "The era of Big Government is over." He saw we simply couldn't afford it.
Contrast that with President Obama with his supporters and beneficiaries of government largess surrounding him, and his gleeful comment: "Welcome back!" What did that mean? That if you were a union worker, you didn't have to pay taxes for 5 years on your Cadillac healthplan, but if you weren't, sorry. Unbelieveably, it's in the health proposal. It also meant, of course, bigtime spending plans.
Jim, you are right that Reagan and Bush gave us 16 years of increased deficits. Thanks for the references, which I checked. You might also have noted the projections provided: in 1 year, President Obama will give us a rise in deficit as a percentage of GDP that will approximately equal the combined deficit increases of Reagan and Bush in their 16 years in office. For the first time we will surpass the numbers put up by the Father of Deficit Spending in America, Franklin Roosevelt. Indeed, Welcome Back, renewed and far greater than ever, to government spending, as our deficit spending balloons almost beyond imagining and undermines our children's future.
You never cease to get my blood boiling. Perhaps that's good for my cholesteral.
The Republicans (read that the Bush Administration) spent too much from 2000 - 2008, contributing to the collapse of the economy. OK - Forget that the house was controlled by the Dems after the 2006 elections. Forget that the Dems, with a huge majority in both houses passed an $600B spending bill on top of Bush's emergency spending bill just before the November 2008 elections of another $800B. Forget the cost of Obama's government run insurance plan. Forget the cost of cap and trade legislation which has as its foundation the now debunked theory of man caused CO2 in the atmosphere. Please get some balance on your editorial board.
Tax increases are a bad idea. If you want to stimulate the economy, you reduce taxes so those "evil" capitalists can keep some of their "evil" profits and be incentivized to create real jobs - not temporary make-work paid for by increased taxes or by printing money. Increased taxes will do nothing but chase capital away - I'd rather invest in China than the US where the local and federal governments are vying for my profits. Government spending needs to shrink - 10% per year - Not expanded as the current administration is doing.
Keynesian economics only works if those controlling the money supply and those regulating them are unmotivated by greed and power. Good luck. I'd rather stick to principles of free market economics which will prevail regardless of man's intervention. Saving is a good thing. Accumulation of capital is something to be rewarded, not punished. Tight money backed by tangible assets will result in stable economic expansion over the long run. How can you allow a bank to charge 36% interest to a consumer and preclude that consumer from charging more than 6% interest in a private transaction. Oh - I forgot - lobbyists.
Please contact someone from the Heritage Foundation to sit on your editorial board. Your socialist economic and political tendencies have become too transparent. No one can take your viewpoints seriously any more.
My original comment was directed toward the editor's opening sentence that: "Following World War II, there were two things that kept the U.S. budget deficit under control: the fiscal responsibility of the Republican Party (and conservative Democrats) and fear of inflation." The record clearly doesn't support such a generalization.
Mr. Mattingly's comment is accurate regarding the politics of the time. However, I am always amazed that Republicans have good reasons for expanding debt but Democrats don't.
Regarding President Obama.
I think it would be a little unfair to assume the projections based on the first year of the Obama administration will hold true. Dealing with the worst economy since the depression called for a pretty drastic steps which began at the end of the Bush administration. I think most economists would agree that increased government spending is necessary to pull the country out of the recession. If you will check the Congressional Budget Office analysis of the Health Care Bill passed by the Senate I think you will find that it is projected to reduce national debt. Granted that too is based on variables, but at least the Democratic party is attempting to address the problem.
Please check out the Coffee Party. They are a non-partisan group who are working to drive constructive solutions to the these problems.
www.CoffeePartyUSA.org