Do Deficits Matter?
April 8, 2013 1 Comment
In a previous post I commented on David Stockman’s recent piece in the New York Times. In it Stockman makes a pointed reference to “the Reaganite shibboleth that ‘deficits don’t matter’.” This belief became so deeply imbedded in Republican thinking, he says, that it
allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy.
In 2010 Stockman made a similar statement, claiming that
This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.
A reader has asked, did Reagan actually say the words: “deficits don’t matter? That is totally out of character with what we now believe he stood for.”
For the Record
So I did a bit of checking because every quote requires a context. The quote first appears in Ron Suskind’s 2004 book The Price of Loyalty, which became a #1 New York Times best seller. A good brief summary of the context comes from John Nichols recent article in The Nation. Here is how he explains it:
After the Republicans gained control of the US Senate in the 2002 election, giving them across-the-board dominance of the legislative and executive branches of the federal government, the key players in the administration of President George W. Bush gathered to discuss fiscal policy.
Vice-President Dick Cheney wanted to cut taxes for the rich.
Treasury Secretary Paul O’Neill was skeptical. … [He] expressed concern that a trillion dollars worth of tax cuts had already been enacted. … [W]ith the country rebuilding from the economic slowdown after the 9/11 attacks, and with a war being fought in Afghanistan and another on the horizon in Iraq, O’Neill noted that the budget deficit was increasing. And he argued against Cheney’s position, suggesting that another tax cut was unnecessary and unwise.
“You know, Paul, Reagan proved that deficits don’t matter,” said the vice-president. “We won the mid-term elections, this is our due.”
O’Neill was, according to Suskind, left speechless.
So although the statement is attributed to Ronald Reagan, it can be traced to Dick Cheney who was the Chairman of the Republican Policy Committee during the Reagan administration (serving 1981-1987) and a major shaper of Reagan’s policies.
Previously Cheney has served as White House Chief of Staff under President Ford. Afterward he served as Secretary of Defense under George H. W. Bush. He was also the Vice-President for 8 years under George W. Bush.
In many ways Cheney has been the “man behind the throne” in the last 4 Republican administrations that span a period of more than 3 decades (1975-2008). His influence in foreign and domestic affairs has been incalculable.
And so while the statement that “deficits don’t matter” may ultimately not come from President Reagan himself, it is been inexorably tied to Reagan’s policies and those of successive Republican administrations since Reagan. It has become in both practice and in the public mind a key “Reaganite” principle.
Who Are the Big Spenders?
As Steve McGourty observes in his 2008 detailed analysis of the entire history of U.S. debt, “It appears that the frequently referenced Reagan’s Conservative mythology is contrary to the truth, he was an award winning, record setting liberal spender and government grower.”
Prior to the Neo-Conservative takeover of the Republican Party there was not much difference between the two parties’ debt philosophy. They both worked together to minimize it. However the debt has been on a steady incline ever since the Reagan presidency. The only exception to the steep increase over the last 30 years was during the Clinton presidency, when he brought spending under control and the debt growth down to almost zero.
Comparing the borrowing habits of the two parties since 1981, when the Neo-Conservative movement really took hold and government spending raced out of control, it is extremely obvious that the big spenders in Washington are Republicans and their party’s presidents. … The Republican presidents (Reagan, Bush, and Bush II) raised the debt an average of 10.8% per year.
Did deficits matter to these Republican presidents? Apparently not. Cutting the deficit was never their priority.
It was a priority, however, for President Clinton who wrestled the increase in the annual deficit down to near zero during his 8 years in office (1983-1991). Despite enormous opposition from a Republican dominated Congress during his last 6 years of office, he was even able to post modest budget surpluses during the final 3 years of his Presidency.
President Obama came to office in 2009 in the midst of the worst economic crisis the U.S. has faced since the Great Depression. He inherited a current year budgetary deficit of $1.4 trillion from George W. Bush. The trajectory, based on the tax revenue policies established by President Bush, was for further massive increases in coming years.
Obama worked hard to turn that situation around, despite massive opposition from the Republicans. By the end of his first term in office he had cut the annual deficit in half. In fact, Barack Obama now has the unique distinction of having cut the deficit by more than any president in American history since Andrew Jackson (1829-1837).
Now Deficits Matter
When one listens to the steady stream of rhetoric coming from the Republican camp, one notes a great reversal in tone. There had been no complaints about the accelerating deficits and out of control spending during the Reagan and Bush years. Now with President Obama in office, deficits suddenly seem to matter a great deal.
They paint a dire picture: action must be taken to stop Obama’s reckless spending habits. America is at a tipping point due to the debt crisis. According to John Boehner, “Unsustainable debt and deficits threaten the prosperity of our children and the health and retirement security of our seniors.”
Uh-huh. It’s easy to see through the rhetoric. We can tell what is really going on. As Jon Perr put it in a recent editorial: “‘Reagan proved deficits don’t matter.’ Unless, of course, a Democrat is in the White House.”