The Myth of Republican Fiscal Responsibility

Posted  by AzBlueMeanie:

At the height of World War II, government deficit spending as a percentage of GDP far exceeded 100%. That would be the federal stimulus spending on infrastructure and the restoration of America's industrial capacity to full production as we converted our economy into the arsenal of freedom that won the war – and ended the Great Depression. Keynesian economics worked.

Since the end of World War II, the national debt as a percentage of GDP steadily declined until 1981 – when movement conservatism and Saint Ronnie Reagan returned to the failed laissez faire economic policies of Herbert Hoover and manufactured the myth of Republican fiscal responsibility.

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H/T to Jon Perr at Crooks&Liars blog Obama's Summit and the Myth of Republican Fiscal Responsibility who observes that "Far from the deficit hawks of Republican legend, the modern Republican Party from Reagan forward devastated the U.S. treasury, leaving mounting debt and hemorrhaging red ink for as far as the eye can see."

"As the chart above shows, the national debt under president Reagan, Bush 41 and Bush 43 exploded as a percentage of GDP, interrupted only by the all-too-brief fiscal sanity of the Clinton years. And to be sure, the budget surpluses of the late 1990's seem like a distant memory."

[T]he Republicans' fiscal rot didn't begin with George W. Bush, but with Ronald Reagan. It was the legendary Gipper whose financial recklessness and tax-cutting fetish came to define the modern GOP.

The numbers tell the story. As predicted, Reagan's massive $749 billion supply-side tax cuts in 1981 quickly produced even more massive annual budget deficits. Combined with his rapid increase in defense spending, Reagan delivered not the balanced budgets he promised, but record-settings deficits. Even his OMB alchemist David Stockman could not obscure the disaster with his famous "rosy scenarios."

Forced to raise taxes twice to avert financial catastrophe (a fact conveniently forgotten in the conservative hagiography of Reagan), the Gipper nonetheless presided over a doubling of the American national debt. By the time he left office in 1989, Ronald Reagan equaled the entire debt burden produced by the previous 200 years of American history.

For his part, George H.W. Bush hardly stemmed the flow of red ink. And when Bush the Elder broke his "read my lips, no new taxes" pledge to address the cascading budget shortfalls, his own Republican Party turned on him. While Bush's apostasy helped ensure his defeat by Bill Clinton, it was Clinton's 1993 deficit-cutting package (passed without a single GOP vote in either house of Congress) which helped usher in the surpluses of the late 1990's.

Alas, they were to be short-lived. Inheriting a federal budget in the black and CBO forecast for a $5.6 trillion surplus over 10 years, President George W. Bush quickly set about dismantling the progress made under Clinton. Bush's $1.4 trillion tax cut in 2001, followed by a second round in 2003, accounted for the bulk of the yawning budget deficits he produced.

Like Reagan and Stockman before him, Bush resorted to the rosy scenario to claim he would halve the budget deficit by 2009. Before the financial system meltdown last fall, Bush's deficit already reached $490 billion. (And even before the passage of the Wall Street bailout, Bush had presided over a $4 trillion increase in the national debt, a staggering 71% jump.) By this January, the mind-numbing deficit figure reached $1.2 trillion, forcing President Bush to raise the debt ceiling to $11.3 trillion.

"And so it goes. The Republican Party of No decries President Obama's deficit spending urgently needed to rescue the country from the economic cataclysm over which they presided… [and] the endless sea of red ink they themselves produced."

The GOP should just sit down, shut the hell up, and come along for the ride as people who actually know what they are doing do their best to rescue our economy from the GOP's failed economic ideology and hubris.

5 responses to “The Myth of Republican Fiscal Responsibility

  1. I’m sorry but you forget who controlled the congress under Reagan and Bush I and who controlled it under Clinton. Yeah you dems fail.

  2. Inflation is the result of too much liquidity in the market. This was, in fact, what happened to the housing boom by allowing people to get money for “free”. This liquidity, however, was funded by debt and not income — which seems to be the way the republicans have been financing their wars for the last 30 years.

    With that said, the act of “printing money” and injecting it into the economy will likely result in inflation. The proper way to fund necessary spending is by raising taxes. However, in our current economic crisis, raising taxes would be unwise.

  3. When the private sector is not providing liquidity (credit) and is not spending money in the economy but hoarding cash reserves, as it is doing now, the government must step in to provide liquidity and spending to jump start the economy. Even traditional economists accept this economic reality.

    Spending government money does NOT take away money from the private sector but rather injects money into the private sector. The government has to purchase goods and services from the private sector, which leads to business expansion and more jobs eventually.

    Government competing for credit (to finance deficit spending) DOES make credit less available to the private sector, but again, if the private sector is not currently making credit available or spending money in th economy, then government is the only “engine that could.”

    You are correct that depression era and World War II spending was mostly financed by domestic sales of U.S. Treasury bonds and savings bonds, because FDR established the Federal Reserve Bank and the bond programs after the world’s financial system had collapsed. There are far more sources of debt financing today, only a portion of which are foreign investors.

    Inflation can be caused by many factors, it is not always the result of national debt. The U.S. national debt has more than doubled over the past 8 years and is approaching $11 trillion dollars as a result of Bush administration policies, yet inflation has remained at a relatively low and stable rate. Think about that for a moment.

    Asserting that the U.S. will look like Russia does today is just uninformed nonsense.

  4. I recall in the 1930’s FDR did not have the World finance our debt we did!
    Spending Government money takes away money from the private sector , you and me that causes a direct effect of massive inflation!
    Obama is not doing us any favors and is taking us for fools!
    Any interruption from here on in our financials or security will be catastropic and we will look like Russia does today after it vanised overnight!

  5. That chart is really interesting. I never knew that, and nothing beats statistics and facts to prove things. If history does repeat itself, I think Obama is on the right track. Maybe the reason why Clinton has been praising him so much lately is because he sees himself in Obama somehow.