The first section of “Broke” comes to an end with this chapter. If you recall the purpose of this section was to trace the financial history of the U.S. government that eventually led us to being broke. This chapter focuses on the most recent presidents, George W. Bush and Barack Obama, and their contributions to our current state of affairs.
Chapter #9: W. & O. – The Progressive Era Returns
GEORGE W. BUSH: WARS ON EVERYTHING, EXCEPT DEBT
Governments always try to expand their power. Period. This can be see in the way governments slowly expand over time, the grab the bull by the horns expansion that comes as a result of cashing in on political capital, and quick grabs that come from responding to a crisis. George W. Bush exploited all three ways of expanding government power. Bush was the biggest spender since LBJ and it is indefensible (Beck 115-116).
Bush’s economic plan was simple: cut taxes. And Republicans forgot to be Republicans when they were finally back in power. The amount the federal government increased significantly in Bush’s eight years in office. There are four main factors why. First, Bush cut taxes, which encourages people to work, save and invest; increasing productivity and economic growth. The problem is that the Republicans kept spending after the tax cuts were made, forgetting the other half of fiscal responsibility: cutting spending. The second factor is the dividends from the tech and housing bubble ended. The Tech bubble burst under Clinton’s watch and Bush was left to clean up the mess. Towards the end of his term Bush also endured the subprime mortgage crisis. All told both bubbles cost the U.S. untold amounts of wealth when the stock markets crashed. The third factor was the war on terror. The estimated total of the war is well over $1 trillion to date, but even without the war on terror, Bush would have spent $5 trillion more than Clinton. Defense spending was only one-third of all new spending under bush. The last factor was that the Republicans spent like a drunken sailor. The problem was that no politician was willing to sacrifice to pay for the war on terror and our national security. i.e. cutting in other areas to pay for it. Obama has the same problem. While at war we expanded discretionary spending and added a new entitlement program as the ones we have were “spiraling out of control” (Beck 116-119).
THE DECLINE AND FALL OF THE GOP
In a matter of ten years the Republicans had turned themselves into the party they had kicked out of office in 1994. Bush ran against the mean Republicans as a Compassionate Conservative and Bush promised more spending with this new found surplus. Here are some of the big spending program he introduced: No Child Left Behind, increasing farm subsidies, Medicare Part D for prescription drugs, the most expensive highway bill in American history, and $29 billion in Pork spending projects. This spending was meant to buy off special interest groups and expand the Republican majority. The Republicans paid for trying to be Democrats when they were kicked out of office for the real thing in 2006. Bush’s policy record shows him to be more a liberal than a conservative, even more liberal than Bill Clinton. The Republicans in Congress were no better either. Those Republicans challenging the party (Tom Coburn, Jeff Flake, Mark Neumann and Ron Paul) were ostracized. After seeing the consequences of their actions many in the party are changing their tune. Only time will tell if they are sincere (Beck 119-122).
AMERICA GETS PUNK’D
It took thirty-six years of convincing but the Republicans finally expanded Medicare in 2003 to include a prescription drug plan. The problem the program had is that it was an unfunded liability. No new taxes were levied to pay for the program and long term liability of thee program was defined as infinite by the CBO director Douglas Holtz-Eakin. It was the most fiscally irresponsible legislation since the 1960s. In short, Medicare Part D, gave us and unending long term commitment with no money to pay for it. Why did Republicans stand behind this proposal? They wanted to get reelected. What makes this worse is the bill was forced through Congress even over the objections of true conservatives. In fact normal voting time, fifteen minutes, was expanded to three hours to bring pressure on principled Republicans, going so far as to freeze the C-SPAN cameras. It eventually passed in the House and the Senate and was signed by the President (Beck 122-124).
REPUBLICAN REGULATION OF FREEDOM
People want to give the Republicans and Bush a hard time for cutting regulations but the facts tell a different story. Under President Bush the Federal Register increased by 16,000 pages in just under seven years. These regulations are the red tape and bureaucracy costs for business that get passed along to the consumers. To comply with these regulations it cost businesses $1.172 trillion in 2008. This also added ninety-one thousand employees to the federal government, costing the U.S. even more money in the paychecks and benefits we have to pay to these new employees that comes out of our paychecks in taxes (Beck 124-25).
GIVE ME GOVERNMENT, OR GIVE ME DEATH
The financial crisis of 2008 was very real and the government again used it to their advantage to expand their power. The American people were told we must spend this money to save ourselves from impending disaster. We had to give a bailout to these failed companies who made bad loans, sometimes at the encouragement of the federal government. In the end it cost the American tax payer $3.07 trillion and counting. Using inflation adjusted costs that is more than the Marshall Plan, Louisiana Purchase, the race to the moon, the Savings and Loan Crisis, the Korean War, the New Deal, the second Gulf War, and the Vietnam War, COMBINED! Meanwhile we have a President abandoning free-market principles to save the free market. How does that work? The first plan was drafted with no option to back out for the banks and with no plan on where the money would come from. A supposedly republican capitalist government was strong arming many companies to take money, forcing mergers, cutting deals with unions, penalizing private bond holders, and hiring unelected, unvetted czars to monitor compensation. The transformation of America had begun (Beck 126-127).
BARACK OBAMA: WE’RE CALLING YOUR BLUFF
The plans of Barack Obama should not have been a surprise to many Americans. He did not hide the fact that he saw social and economic injustices in our system in the middle of a crisis. So he passed a stimulus package that was to pay back some of the best supporters he had during the campaign and a give away to liberal causes. Federal agency saw their budgets increase by eighty or one hundred percent with this one stimulus bill (Beck 128-129).
KEYING ON KEYNES
This spending spree was inspired by no one else than Lord ALfred Keynes. To defend this spending he threw together a study that showed what would happen if the stimulus was not passed. If it was passed unemployment would not go higher than seven percent. If the stimulus was not passed then unemployment would go no higher than 8.8 percent. As we know now neither case was true as unemployment flitted around ten percent at its peak a year ago. Obama also claimed it would create 3.7 million jobs and was touted as gospel among the politicians, advisers, liberal elites and the the lame stream media. What is worse the prediction was wrong (Beck 130-131).
POLITICS OF THE PAST
By the summer of 2010 the realization that stimulus failed was becoming a reality. The administration went on a campaign blitz to try and convince the American people that it did work or that things would have been worse if the stimulus was not passed. Republicans finally saw spending was not going to get them anywhere included reelected and began to challenge the President, so what did he do? He labeled them as haters of the poor and lovers of the rich. He confronted them on the filibuster of recovery programs like extending unemployment benefits. But if that was so important why was it not in the stimulus bill instead of the “shovel ready” projects. He accused the Republicans of saying we should not provide unemployment insurance, which was a bold faced lie when the government already provides that safety net. Lastly he made the argument that the Republicans wanted to poor and unemployed to pay for pay for tax cuts on the rich. No wonder they did not want to work with him. Would you after being lied about and insulted (Beck 131-133)?
BUSH DIDN’T SPEND ENOUGH
Reagan may have incurred two trillion dollars in debt but there were two positive long term consequences to that spending: it helped end the Cold War, and helped rebuild the U.S. economy after the disaster of the 1970s. Obama’s spending contributed no positive outcome. Democrats argue that Bush and Republicans were trying to starve the beast of government (which is not necessarily a bad thing with how out of control it has gotten), but the fact remains that most budget items grew under President Bush, usually at rates four, five or six times the rate of inflation (Beck 133-134).
CREATIVE SOLUTIONS: SPEND AND TAX
Obama’s plan to balance the budget to to raise new taxes, but even liberal think tanks know this will not be enough to cover the budget deficits we have been facing the last three years. We would need to raise taxes almost forty percent to just reduce the deficit to 3% of our GDP. But Obama promised to only tax the rich. That would require to raise taxes on the top two brackets, those making $250K or more a year to seventy-seven percent. Again that would only reduce the deficit to three percent of our GDP. Even taxing the richest two percent at 100% would not be enough to solve our deficit problem. So with cutting government as a no option the only other solution is to find new ways to tax the American people, for that President Obama suggested a Value Added Tax (VAT). This is national sales tax that is added to a product at each stage of production that will ultimately be paid by the consumer (Beck 134-135).
If you read the President;s budget you get an idea of what they hope to accomplish; President Obama’s was a socialist’s dream. His first budget called for $42 trillion in government spending over the next decade, raising the national debt by nine trillion dollars even with the tax increases. He called this plan “very disciplined” and “fiscally responsible.” Other parts of his next budget included pushing public debt to ninety percent of GDP, raise taxes by three trillion dollars, and borrow forty-two cents on every dollar spent. These figures also assume that an economic boom is just around the corner that would create trillions of dollars of new wealth. They brag about saving seven billion dollars and then increase spending by twenty-three billion for the current year, while none of the spending went to deficit reductions. Obama is critical of Bush’s deficits but his budgets would add double the amount of debt Bush added in the same amount of time. Even if Obama’s projects are spot on we will be worse of than we were when he came into office. Hope can only come from knowing we are on the right track and fighting a fight that can be won. Hope comes from the truth.
The next chapter starts the second major section of the book where Glenn outlines the major causes of how we are broke. He calls that section: The Crime of the Century and looks at the problem like solving a crime, obviously. I hope you have been enjoying this series.
Questions? Comments? Concerns? Class dismissed!