2007 February 08 Thursday
Bush Parallels On Budget And Iraq

The Bush Administration has just released another budget proposal based on rosy scenarios and improbable sequences of events. David Wessel of the Wall Street Journal examines the question of whether the Bush policies toward Iraq and the US federal budget are based on a similar tendency to embrace an unrealistic vision and stick with it even as it becomes harder to reconcile with reality.

William Gale of the Brookings Institution think tank -- populated by deficit-fearing Democratic wonks who have been trying to find common ground with deficit-fearing Republican wonks -- has been thinking a lot lately about the parallels between Mr. Bush on Iraq and Mr. Bush on the budget.

"The Bush administration's two signature policies have been the war in Iraq and consistent pressure for tax cuts," he argues. "On the surface, they look quite different and were advocated by different parts of the administration. Look a little deeper and some common patterns emerge -- so maybe this says something about the principles or management style of the Bush administration."

It is a provocative and illuminating exercise. Let Mr. Gale kick it off: The president took the U.S. into Iraq with "falsely rosy scenarios" about the post-Saddam landscape there, he says. Mr. Bush built his tax cuts in 2001 on a similarly unrealistic hope that the budget surplus was large enough to cut taxes without creating deficits.

Let us keep going. As Iraq proved different and more difficult than anticipated, and contingency planning was regarded by the Bush White House as a sign of weakness, rather than prudence, Mr. Bush vowed to "stay the course." When then-Treasury Secretary Paul O'Neill and Federal Reserve Chairman Alan Greenspan argued for "triggers" to undo tax cuts if budget reality didn't match projections, the White House scoffed. Even when the Sept. 11, 2001, attacks and the wars in Iraq and Afghanistan drove spending on homeland security and the military far above projections, Mr. Bush didn't revisit his fiscal strategy.

A similar criticism was made of Reagan during the 1980s on the budget and the Cold War. But Reagan had factors in his favor that Bush lacks. First off, the Soviet Union was in deep trouble and its ideologues had ceased to believe in its secular religion. By contrast, the Middle East has no lack of faithful believers in Mohammed, Allah, and Jihad,

Also, Reagan's spending on defense and stirring rhetoric helped catalyze a collapse of the Soviet Union that yielded a huge dividend in lower needed defense expenditures. So Reagan's spending ended up acting like a sort of investment. By contrast, Bush's approach to the Middle East is making the US military more expensive to maintain. But this won't make US defense cheaper down the road.

During the Reagan era the demographic problems in the United States were still a more distant gathering storm. Reagan raised taxes to put off the reckoning with the aging population economic problems. But the decade after Bush leaves office is when the baby boomers retire in large numbers. Also, the average skill level of the remaining workers will decline. Reagan steadfastly opposed the biggest external threat to the United States. Bush embraces the big immigration surge that is doing so much to make our demographic situation worse. Bush even refuses to see Islam as a negative force. By contrast, Reagan always saw the nature of communism as evil.

Share |      By Randall Parker at 2007 February 08 10:39 PM  Elites Neoconservative Menace

Your Image Here said at February 9, 2007 12:55 AM:

Does anyone here remember the phrase ''Voodoo Economics''? And does anyone rememeber WHO ACTUALLY COINED THAT PHRASE? I think it's time to ressurect that phrase.
And now we ALSO have ''Voodoo War''. Randall is correct, there is nothing wrong with optimism per se, but when it turns into ''rose colored glasses'' it goes wrong...

(Vicente) Fox Hound said at February 9, 2007 5:37 AM:

[blockquote]Does anyone here remember the phrase ''Voodoo Economics''? And does anyone rememeber WHO ACTUALLY COINED THAT PHRASE?[/blockquote]

If I remember from watching Ferris Bueller's Day Off, Ben Stein as the teacher said George H. W. Bush came up with "something 'd-o-o' economics. 'Voo'-doo economics."

But while Reagan certainly was not perfect, he was leaps and bounds better than this traitor we have in office now.

Stephen said at February 9, 2007 10:57 PM:

Randall said: "Also, Reagan's spending on defense and stirring rhetoric helped catalyze a collapse of the Soviet Union...",

This is an example of the insidiousness of propaganda. No doubt it played its part in enabling the US's foolish adventurism in Iraq.

gcochran said at February 10, 2007 9:36 AM:

At least some expenditures did some catalyzing: particularly aid to the muj in Afghanistan, especially those Stingers. Nothing like disaffection and disgust in the military to help that kind of thing along.

crush41 said at February 10, 2007 4:16 PM:

Hey, Massoud made a chunk off those Stingers, too.

I'd be less skeptical if tax rates and governmental revenues trended in the same direction, but that's ambivalent at best. The capital gains revenues have been especially robust. The combined total federal government receipts exceeded projections by over $150 billion.

ziel said at February 11, 2007 4:42 PM:

The Reagan tax cuts were based on supply-side theory and were intended to reduce marginal tax rates and thereby free-up effort and investment suppressed by high-marginal tax rates. The theory doesn't seem to work though, since there's little evidence of a surge in tradeable output resulting from tax cuts. But at the time, we were going through the bizarre period of 'stagflation', where inflation was in the double digits, an inverted yield curve, and a stagnant economy. Whether we would have snapped out of it without touching taxes is debatable. Also, very high marginal rates kicked in at relatively low levels of income.

The Bush tax cuts were purely political/ideological, as the economy was fine (maybe slowing a bit) but hardly any signals requiring huge tax cuts, and not particularly terribly high marginal rates in effect anyway. The Bush tax cut was effectively Keynesian. There has been continued erosion in our output of tradable goods while most job growth has gone to services and immigrants.

So I would agree that both Bush's Iraq policy and tax policy are driven by ideology without regard to any practical assessment of their consequences.

gene berman said at February 11, 2007 7:26 PM:

Reagan's ideas were termed "voodoo economics," if I remember aright, by George Bush (the elder), campaigning against him for the Republican nomination, much as stated by "Vincente Fox," above.

Reagan did not bring down the USSR, and if alive and sentient, would be embarrassed (and disappointed) to hear that event described in such fashion. Even before becoming president, Reagan fully expected that, one day, the USSR would simply collapse like a "house of cards" because of the fundamental impossibility of economic calculation in a socialist economy. Of course, he played a part in contributing to a relentless pressure on their abilities. The reason that Reagan expected such a collapse (even though the relative immediacy might have surprised him) was the same one that made me expect the very same thing, though, when it happened, I was also surprised.

The reason? Both of us subscribed to the views of Ludwig von Mises, who had made just such a prediction, including the "house of cards" simile--'way back in the early '20s (qualifying that it might take some considerable time before that prognostication was realized). I came across (and began to be influenced in my thinking by) Mises in 1972 but never realized his influence on Reagan until many years later--the late '90s, when I read a newspaper article which had originally been written during his term as governor, concerned primarily with his spare-time reading habits, in which he said, basically, that he had entirely given up any reading of fiction years before and, apart from reading required by his work, read nothing whatever but the economic writings of a very few, among whom (I remember) he named Mises, Hayek, and Bastiat.

Curiously, I wouldn't have learned this if I hadn't been to a sister's place for Thanksgiving and sat through an afternoon and evening of leftish pseudo-intellectual bashing of conservatives, Reagan in particular. My sister made a snide comment to the effect that he'd only read two books in his entire life and "never read if he could help it" and attributed her knowledge to an interview she'd read many years before. Though she was a liberal, she was not an outright liar--there must have been some basis for the statement she made. There was--and the 1976 interview turned out to be it. Many years previously (about 1981 or 2) I'd read in the WSJ that Mrs. von Mises had been a guest at a White House dinner and that the Reagan remarked to her that he never made an economic decision without studying what her late husband might have said on the subject; at the time, I thought the remark to have been the sort of polite, "nice" thing to say to an elderly widow and so, attached no more importance to it.

Also, if I recall correctly, the part of Reagan's economic proposals that caused the elder Bush to slap the "voodoo" label was his insistence that taxes could be lowered significantly without necessarily diminishing revenues--that, in fact, lowering taxes properly was likely to increase revenues. Of course, there was nothing "voodoo" about it; it was even well-known that, in pre-WW I England, in several successive governments, alternately under Disraeli and Gladstone, Disraeli raised taxes every time and saw revenue shrink while Gladstone cut them when he got in--and revenues rose. That same experience is likely to have influenced JFK toward his own tax-cutting program. In our own time, smart Democrats are equally aware: their desire for higher taxes stems from a need to represent themselves as champions of the lower economic strata and for the power over the productive sector conferred by the ability to inflict (or alleviate, selectively) damage; the courts are used in precisely the same way, for identical reasons.

Randall Parker said at February 11, 2007 8:32 PM:

Gene Berman,

First of all, Reagan read much more widely than you seem to think. He spent the late 70s in particular reading widely.

Second, Reagan told the then socialist foreign minister of Italy in the 1980s that he was going to keep upping military spending and cause the Soviets to try to match him until the USSR fell apart. I read about this in The Economist probably 15 to 20 years ago.

gene berman said at February 12, 2007 6:54 PM:


In no way did I (nor do I) maintain that Reagan wasn't well-read. The interview which I cited had him stating that, owing to the enormous amount of reading required (as gov of CA), he'd decided to simply quit reading all fiction and, further, that the spare-time reading he continued was
entirely given over to a small number of free-market economists.

One of my interests in this matter is that I, also, quit reading fiction (back in 1947-8 or thereabouts) just in order to "draw the line somewhere" and so I could do other things beside read. Much later (1980) I quit reading newspapers and magazines and have been clean and sober ever since. In the latter case, though, it stemmed from a realization that those media constituted a pervasive, continuous immersion in propaganda whose influence it is nearly impossible to avoid.

By the way, were you aware that Reagan may hold a "world's record" for lives saved (as a lifeguard)? I seemed to remember that he was credited with saving the lives of 77 people.

(Vicente) Fox Hound said at February 13, 2007 6:54 AM:

For the record, my handle is anti-Vicente Fox, and anti-Mexican. A foxhound is a big dog proficient at hunting down foxes. Hunting foxes, Vicente Fox...you get the picture.

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