Originally posted by Bullypulpit
Well, dear, twent yyears ago, the Republicans ran on a policy of fiscal responsiblity, smaller government and less intrusive government........... Shrub has squandered the Surplus and is racking up deficits which our children's children's children will be paying.
What are you talking about? There was deficit spending in the 80's under Reagan, huge deficits. And they were paid off, not like the scenerio you paint with our children's children's children money. There is no more surplus - good, the government should not be collecting more money than it needs anyway. Its our money not the governments.
Deficits DonÂ’t Matter
By Brian S. Wesbury
Published 3/30/2004 12:07:11 AM
I can't believe that I am writing about budget deficits again. The Bush Administration's $520 billion deficit forecast for this year doesn't bother me, but the deficit phobia and media outcry is getting tiresome. I thought this had been resolved and agree with Vice President Cheney, who reportedly told Paul O'Neill, "Reagan proved that deficits don't matter." He was right.
Budget deficits in the United States have never caused interest rates to increase unless the Fed has tried to monetize them. They have never crowded out any private investment, they have never created a trade deficit, and they have never made anyone (except for Paul Krugman) think that the U.S. is becoming a Third World country. They have also never influenced the outcome of an election unless a President reacted to them by raising taxes.
Deficits, and debt, transfer consumption over time -- that is all. Those who are willing to consume less of their income today provide funds to those who want to spend more than their income. Interest rates are both the cost and benefit of this activity. From the government's point of view, the only question is whether to borrow or tax the revenues that it needs.
No matter how the government chooses to finance spending, every dollar must be taken from the private sector. The only difference is that borrowing is voluntary, while taxation is not. This is why "crowding out" is such a wimpy theory. It may sound good on the evening news and make sense in Macro 101, but the data has never supported the theory.
RONALD REAGAN EXPERIENCED budget deficits every year he was in office and retired with some of the highest approval ratings of any President. Moreover, the economy underwent the worst recession in 50 years during his tenure in office, and between November 1982 and July 1990 experienced what was at that time the second longest expansion in history.
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The Wall Street Journal's Panel of 54 economists expects real GDP to expand 4.4 percent during 2004. While an excessively easy Fed policy has caused my models to forecast some sharp increases in long-term interest rates for this year, the consensus expects only a slight 50 basis point rise.
If deficits are bad and surpluses are good, as former Treasury Secretary Robert Rubin tells anyone who will listen, then why did manufacturing and investment falter in late 2000 and why did the economy fall into recession in early 2001? Why did the recovery begin just when budget deficits were returning?
If deficits supposedly push up bond yields, then why did rates fall during the 1980s, stabilize during the late-1990s when surpluses appeared, and then tumble to 40-year lows in the early 2000s when deficits returned again?
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Debt that provides a positive real return is a good thing. Borrowing money to go to college or graduate school will pay benefits for years to come. Running a deficit to fight a war against terrorism is an investment in protecting the freedom that creates growth. Cutting taxes to boost economic growth may not always boost revenues right away, but over time the growth that tax cuts create is essential to balancing the budget.
Ronald Reagan exemplified how these two policy decisions can have huge payoffs. Reagan cut taxes to boost growth and increased defense spending to defeat communism. Following the collapse of the Berlin Wall, the world reaped the benefits of his investment and experienced a "peace dividend." Bill Clinton was able to cut defense spending from 5.4 percent of GDP in 1991 to 3.0 percent in 2000. This 2.4 percent drop in defense spending as a share of GDP is exactly equal to the 2.4 percent of GDP surplus that the U.S. experienced in 2000. Coincidence? Hardly.
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WHILE DEFICITS ARE CLEARLY back for the time being and the just-released Bush budget forecasts a peak deficit of just 4.5 percent of GDP in 2004, this deficit is small compared to the past. Between 1982 and 1986, the federal budget was in deficit by an average of 5.0 percent of GDP. The economy continued to grow, with low inflation and falling interest rates, throughout the 1980s, and there is no reason to believe that deficits in the 2000s will result in any different outcome.
Some may say that it is different this time because baby-boomers are starting to retire and Social Security and Medicare are about to hit the wall. This analysis is misguided. These programs are financially flawed and will eat our economy alive unless they are fundamentally restructured. If not, then government spending will soar and truly crowd out the private sector. No amount of government surplus will pay for these programs.
I doubt this is the last time I will have to explain these realities about budget deficits, but I hope I have set the record straight this time. Reagan taught us right -- deficits don't matter, spending does.
full story
It's not midnight in America, perhaps at the DNC.
And if Bush wanted oil from Irag,why are gas prices so high?
Thank you very much jon!
