What Would Gore Do?

Andrew writes:

Maybe that "about" saves Megan from total surrealism. But is she actually saying that any president would have cut taxes heavily and also increased domestic spending heavily and added a new (unfunded) crippling healthcare entitlement - as he launched a $3 trillion war on two countries? Is she saying that Al Gore was proposing this in 2000? That any president would have put two open-ended, enormously expensive wars off-budget? Is she also saying that the massive deficits projected under current plans have nothing to do with Medicare D? Or that Bush's lax regulation of the banking industry had no role in the depression that has devastated government finance?

No you cannot blame Bush for the deeper issues of Medicare A-C, or social security, although you could argue that his failure to restrain them before the boomers retired was an act of omission no real fiscal conservative would have countenanced. But really: this faux world-weary, pox-on-both-your-houses excuse-making for one of the most fiscally reckless presidencies in history won't play.

No, I didn't say that any president would have spent on the specific, often stupid things that Bush did.  They would have found their own specific, often stupid things to spend on, and maybe, hopefully, even some non-stupid things.  Some of those things would have resembled what Bush did:  Medicare Part D was coming, and a Democratic package was going to cost more.  But more broadly, when the stock market bubble evaporated, the surplus would have gone away regardless of who was president--and so would the political will for high taxes or cutting spending.

But Andrew's post really illustrates why I say no one cares about the budget deficit.  What does it matter what he spent the money on?  The problem with budget deficits is that they will crowd out private investments, or that they bequeath a legacy of high interest costs and/or principal repayments to future presidents, and the taxpayers they represent.  The market does not care whether we spent it on invading Iraq or finding a cure for AIDS, or a flat panel in every home.  It will charge us interest, or deprive the private sector of capital, just the same.

Would Andrew let Bush off the hook for the Iraq war spending if he'd raised taxes to pay for it?  Would anyone stop complaining about the hundreds of billions we've spent so far? 

The budget is just a side show--because it has hard numbers, it seems to lend some sort of "provability" to peoples' prior policy preferences.  But the actual provable harm from the Bush budget deficits is small.  As I pointed out earlier, net debt has risen very little as a percentage of GDP, net interest has actually fallen in real terms and as a percentage of GDP, and it is demonstrably false that Bush deficits diverted investment capital from the private sector--or at least, if they did, they did us a favor, by keeping the mortgage bubble from getting even bigger than it did.

Now, you can say that Medicare Part D makes it harder for Obama to close the budget deficit.  But that's true of every program.  Why pick on Medicare Part D?  Because Bush enacted it while the budget was in deficit?  But Medicare Part D was enacted in 2006, late in Bush's presidency, and until the financial crisis, the deficit was basically closed.

But more to the point, it's not like Obama has evinced any interest in closing the budget deficit.  Right, he says he wants to deal with it.  Bush said the same thing, and I don't see Andrew or anyone else giving him brownie points for his good intentions (nor should they).  Whatever Obama says he wants to do about the budget deficit, what he's doing is making it bigger.  And not just this year, when he arguably should be:  I give him a total pass on 2009 spending, and am prepared to be convinced on 2010.  But Obama is making the deficit bigger in 2011, 2012, 2016, 2018, and beyond.

Of course, a lot of that is due to Medicare and Social Security--not Medicare Part D, but the boring old kinds, enacted by Lyndon B. Johnson and FDR.  But I don't think that the main problems with the programs are that both Johnson and Roosevelt enacted those programs while running sizeable budget deficits.  The problem is that they are very expensive and their costs are growing just as the taxes that support them start to fall.

Obama has more reason to be mad at Johnson and FDR for bequeathing him intractable legacy costs than at Bush:  they will substantially reduce the scope of the things that Obama can do.  But I don't expect to hear him explain that he has to run a budget deficit because he inherited a legacy of unsustainable spending by his Democratic predecessors.  The fact remains that Bush actually left him very little legacy of permanent spending to be drivng his future deficits.  Once we withdraw from Iraq (I assume we can all agree that any president would have invaded Afghanistan), and the tax cuts expire next year, the actual net contribution of everything Bush did to Obama's structural deficits will be well under $100 billion a year of the $1 trillion or so Obama is projected to spend.

Not that I want to get all hysterical about the Obama deficits either.  I presume he's planning to deal with them, mostly in ways I don't like. But I'm not going to start claiming that I have scientifically proven, through the awesome power of budget math, that Obama is like the worst president ever:  I will hate his health care plans, etc. exactly as much if he raises taxes to pay for them.  My worries about his deficits are more prosaic:  is he borrowing so much money that we're at risk of a fiscal crisis brought on by excess debt and spiking interest rates, or is he crowding out private investments?  These are empirical questions, and it's far too early to have more than hints at the answers. But Obama's deficits, even in 2012 and beyond, are the largest since World War II by any measure.  And that's good reason to worry, in a non-hysterical fashion.

I also worry that he's using the deficits to slip through programs that we'd never support if we had to pay up front, his health care plans among them.  But that doesn't make him the worst president ever; it makes him, umm, president.