Commentary Magazine


Contentions

A Few Fiscal Facts

James Glassman, the executive director of the George W. Bush Institute and a Forbes contributor, has written a piece on the facts about budget deficits and how various presidents truly rank.

The inspiration for Glassman’s piece was a comment by former Governor Howard Dean, who was asked what specific policies in the Bush administration he thinks are still being used to explain an unemployment rate of more than eight percent. To which Dean responded, “The biggest ones are the deficits that were run up…. The deficits were enormous.”

All of which caused Glassman to do something that Dean did not: consult the facts in various economic reports. Here is the key paragraph:

As for spending itself, during the George W. Bush years (2001-08), federal outlays averaged 19.6 percent of GDP, a little less than during the Clinton years (1993-2000), at 19.8 percent and far below Reagan, whose outlays never dropped below 21 percent of GDP in any year and averaged 22.4 percent. Even factoring in the TARP year (2009), Bush’s average outlays as a proportion of the economy was 20.3 percent – far below Reagan and only a half-point below Clinton. As for Obama, even excluding 2009, his spending has averaged 24.1 percent of GDP – the highest level for any three years since World War II.

I would only add that under Bush the deficit fell to 1 percent of GDP ($162 billion) by 2007, the penultimate year of the Bush presidency.

As for the financial crisis of 2008, which obviously had a significant effect on the budget deficit, Democrats bear the majority of the blame for blocking reforms that could have mitigated the effects of the housing crisis, which in turn led to the broader financial crisis.

As Stuart Taylor put it  in 2008:

The pretense of many Democrats that this crisis is altogether a Republican creation is simplistic and dangerous. It is simplistic because Democrats have been a big part of the problem, in part by supporting governmental distortions of the marketplace through mortgage giants Fannie Mae and Freddie Mac, whose reckless lending practices necessitated a $200 billion government rescue [in September 2008]. … Fannie and Freddie appear to have played a major role in causing the current crisis, in part because their quasi-governmental status violated basic principles of a healthy free enterprise system by allowing them to privatize profit while socializing risk.

The Bush administration warned as early as April 2001 that Fannie and Freddie were too large and overleveraged and that their failure “could cause strong repercussions in financial markets, affecting federally insured entities and economic activity” well beyond housing. Bush’s plan would have subjected Fannie and Freddie to the kinds of federal regulation that banks, credit unions, and savings and loans have to comply with. In addition, Republican Richard Shelby, then chairman of the Senate Banking Committee, pushed for comprehensive GSE (government-sponsored enterprises) reform in 2005. And who blocked these efforts at reforming Fannie and Freddie? Democrats such as Senator Christopher Dodd and Representative Barney Frank, along with the then-junior senator from Illinois, Barack Obama, who backed Dodd’s threat of a filibuster (Obama was the third-largest recipient of campaign gifts from Fannie and Freddie employees in 2004).

So the current president and his party bear a substantial (though not exclusive) responsibility in creating the economic crisis that Obama himself inherited.

In any event, Jim Glassman has performed a useful public service, if only in deploying (to paraphrase Thomas Huxley) a few fiscal facts to slay a beautiful, if false, deduction.