Boom, Bust, Or Stuck Here In The Middle

A wise friend whose 4.0 in undergraduate economics beats my 3.71 (as I recall) in poli sci tells me I'm wrong to believe that paltry U.S. growth rates over the last two years compared to Britain's negative growth mean that we were better off with Keynesian fiscal policies instead of the Brits' massive cuts in public spending. He cautioned me against buying the canard that FDR's big spending ended the Great Depression. World War II did.

I replied that in fiscal terms, the war was a massive government spending program that gave us a booming economy (plus more debt by 1945 in proportional terms than we have today). I await his devastating riposte. In the meantime, Bruce Bartlett suggests that my friend is right, at least to an extent. Bad Keynesianism definitely doesn't work. Bartlett writes that the Obama stimulus barely stimulated:

[I]t appears that only 11 percent of total stimulus outlays definitely added to growth; the rest may have had no effect at all.

I think that much of the criticism of the stimulus legislation on both sides of the political spectrum has been misplaced. Liberals tend to decry the small overall size of the original package, while conservatives say it was too big. But perhaps the very limited allocation for investment and consumption was the problem.

Potentially, we could have had a smaller program that was far more concentrated on consumption and investment spending that would have given us more “bang for the buck,” done more to raise growth at a lower budgetary cost, and maybe made both sides happy.

Barack Obama's greatest error was focusing on health care instead of jobs during 2009-10 and letting Congress instead of the smartest economists he could find (including perhaps my friend) decide how to spend 2009's $800 billion stimulus. Those who want to vindicate Keynesian policies ought to make sure that they make the most of every public expenditure. They should yearn to prove wrong critics who say that government is genetically incapable of making smart decisions about what sectors of a private economy will benefit most from injections of taxpayer cash and create the most jobs most quickly.

Instead, as Bartlett's analysis shows, Obama has enabled his critics to say that the feds are ineffective, even incompetent. It didn't have to be that way. As Detroit roars back and Japanese automakers stall, Presidents Bush and Obama share credit for the amazingly successful bailouts of GM and Chrysler. But the stimulus was a bust, because Congress was in charge of deciding what programs would get funded. Maybe if Obama had served in the Senate longer, he would have known better than to let that happen.

As for Mitt Romney, he opposed the auto bailouts, and he's pledged to dust off Rep. Paul Ryan's hyper-austere, safety net-destroying budget for 2013-14 -- which would give us a chance to try it England's way after all. Dare I say dumb and dumber?

Hat tip to The Dish

For Goodness Sake, Don't Tell Obama

Conservative purist Bruce Bartlett thinks the "tea party" set should count their blessings:

The irony of these protests is that federal revenues as a share of the gross domestic product will be lower this year than any year since 1950. According to the Congressional Budget Office, the federal government will take only 15.5% of GDP in taxes this year, compared to 17.7% last year, 18.8% in 2007 and 20.9% in 2000.

The truth is that the U.S. is a relatively low-tax country no matter how you slice the data. The following tables illustrate this fact by comparing the U.S. to other members of the Organization for Economic Cooperation and Development, a Paris-based research organization.

We're All Nixonians Now

Bruce Bartlett is a former Reagan administration official who wrote in 2002 that President Nixon had "betrayed" conservative principles by acquiescing in big-government policies. Bartlett now argues that all conservatives will have to live with big government and higher taxes. He wants them to focus on promoting economic growth and keeping tax increases as moderate as possible:

I think conservatives would better spend their diminished political capital figuring out how to finance the welfare state at the least cost to the economy and individual liberty, rather than fighting a losing battle to slash popular spending programs. But this will require them to accept the necessity of higher revenues.

It is simply unrealistic to think that tax cuts will continue to be a viable political strategy when the budget deficit exceeds $1 trillion, as it will this year. Nor is it realistic to think that taxes can be kept at 19 percent of GDP when spending is projected to grow by about 50 percent of GDP over the next generation, according to both the Congressional Budget Office and the Government Accountability Office. And that’s without any new spending programs being enacted.

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I had an enjoyable exchange of e-mails with Mr. Bartlett in response to this post. I don't have his permission to reproduce his messages, so I won't. But in his first one, he said he wouldn't be surprised if I accused him of flip-flopping when it came to the need to hew to conservative principles no matter what. My reply:

I wouldn't say a flip-flop at all. Just an irony. You make clear that we are in unanticipated times and that conservatives need a new script to match. It does seem that for nearly a century they have been fighting the same improvisational and ultimately losing rear guard action against the growth of government. Depression, World War II, Cold War, war on poverty, civil rights, Vietnam, 1980s recession, Social Security crisis, war on terrorism, war on global meltdown -- in response to every crisis, government has grown. I believe it was you who demonstrated somewhere that by the end of his term Ronald Reagan himself had earned the title of biggest tax increaser ever.

I hear you saying that there's a point at which the market will cease having an incentive to recover and grow. Perhaps one sign would be the feds telling Detroit what kinds of cars to build in the teeth of a recession. (Oops! Already happened.)

As for President Nixon, whatever his pragmatic disposition, I don't think conservative critics have appreciated how hard it was to stay in Vietnam (which he'd determined was a vital national interest) with a Democrat-dominated Congress. He couldn't have been more conservative if he'd wanted to (which the tapes and memos show he did, at least sometimes). In California even the governor was tacking to the center. It took the 1980s for Reagan to be Reagan. In the early 1970s, I'll bet he would've been Nixon.