spending our way towards bankruptcy

One of the myths about the United States government since Reagan was elected in 1980 is that government became smaller. Reagan was able to reduce the tax burden to encourage investment, but he didn’t reduce spending. As Greg Mankiw points out the federal outlays as a percentage of GDP have remained relatively the same the past fifty years.

Over the last century, the largest increase in the size of the government occurred during the Great Depression and World War II. Even after these crises were over, they left a legacy of higher spending and taxes. To this day, we have yet to come to grips with how to pay for all that the government created during that era — a problem that will become acute as more baby boomers retire and start collecting the benefits promised.

What Reagan accomplished during his first term was explaining to the American people that government was not the solution to combat a terrible economic crisis. The economy was in much worse shape in the early 80′s when Reagan became president than it is today. He certainly didn’t call call for the kind of spending Obama and Bush have been asking for the past six months.
Conservatives have never had enough votes to curtail federal spending. Once the government starts spending money it never gives up control. For the past fifty years most Americans have been apathetic. Since the New Deal the nation has been squandering the inheritance of future generations. The reality is the nation cannot afford the programs initiated during the Great Depression for more than seventy years. The Great Society tacked on a few more unsustainable programs. President Bush’s prescription drug plan was another government giveaway that is unfeasible in the long-run. After 9/11 instead waiting to find out what the recommendations of the 9/11 commission the Congress created the Homeland Security Department. If we learned anything during that attack it was that the CIA and FBI didn’t communicate. I can’t see how having three agencies is going to make that better.
It seems that liberals don’t care how much the nation spends and moderates aren’t concerned enough to take a stand. It doesn’t matter how much taxes are raised or how many speeches the president makes, the nation is headed towards bankruptcy unless their’s a significant change in our spending priorities. Higher taxes will only damage the economy. It’s time for the government to cut back.

0 responses to “spending our way towards bankruptcy

  1. Interesting. You know how (a very few) people like to say that that the depression was elongated by the policies of FDR? Still others like to say that WWII really was what lifted us out of Depression. Well, you know what? The US borrowed and spent our way into the the famed boom of the mid century. With debt levels reaching 120% of GDP at the height of the war, public spending was what pulled us out.
    Now, I realize that over the last 30 years we have gone from 950B in the hole to 4.5T after Reagan and Bush I, 5.5T after Clinton and now to 10T+ after Bush II. We have a war that we have to borrow for, and a real mess to clean up. But the failed economic policies of deregulate, borrow and spend have created the economic environment that we find ourselves in now.
    It seems that conservatives don’t care about anyone but themselves and have been too busy reaping the rewards of 30 years of excess than to take a stand on anything. While cutting back is in the future no matter what, short term increases in government spending are a reality now. Higher taxes are upon us thanks to the orgy of the last 3 decades. At least now, people are talking. Its a shared problem that can’t be wished away by some right wing myth of fiscal responsibility. Just like crazy credit card debt, you double up your payments and stop spending. Higher taxes (though not to nixon era levels, Clinton level more likely). We gots to wind up the wars (maybe by 2020?) and start paying things back.
    I doubt very much that we will have the political will to stand up and reduce spending but the day is coming where defense is cut by 50%, entitlements are cut by 50% and EVERYONES TAXES go up 5-10% in the aggregate.
    Just a thought, I wonder what would have happened had we not cut taxes and borrowed 5 Trillion dollars? I am not sure but I don’t think our economy grew by more than 5 Trillion dollars over the last 8 years. So really, could it be argued tax cuts did nothing but redistribute dollars to the wealthy? I am told we have a lot more millionaires today than in 1980. That seems like socialism. I always forget though, that socialism for the Rich is OK. They pulled themselves up by their bootstraps. With a big ol helping of Federal largesse.

  2. Can you point to a few specific deregulation policies that resulted in the current problems? It seems like the regulation forcing banks to lend to people with poor credit would be more relevant than some imaginary liberal talking point about deregulation. The idea that Bush’s tax cut (albeit flawed) is the answer to the problem is another fallacy. Which is it, the imaginary deregulation or the tax cuts? How is spending more money than three Iraq Wars and three administration combined an answer to the current problem? If it worked for FDR why did the Depression last until after the war? Why were investors afraid to invest during the thirties?
    What economic policy is responsible for the tremendous amount of wealth created the past three decades? Obama represents the first real shift back to 70’s economic policy. You might want to reread these comments if you were distracted by a cell phone, an HD TV, an IM, a RSS feed alert, an email, or any other luxury that’s been provided at a low cost to a majority of Americans. I guess everything is relative, right?

  3. Here’s one:
    In 2000, Mr Gramm wrote a little known loophole in the Gramm Leach Bliley Act (that repealed the Glass Steagall Act) that legitimized the Credit Swap market that grew to 20+ Trillion Dollar boondoggle of a market. We are reaping the benefits of that free market. Check out that press conference announcing it. They brought chainsaws to it! If you want to, we can talk about defacto deregulation.
    We hear the right crow about how big our government is, but did you realize that it had the fewest employees last year since the Eisenhower presidency? Couple that with leaders that were sworn enemies of the departments they headed up, you have a climate of looking the other way…defacto deregulation…When you don’t have the people or the inclination to regulate, well there is none.
    As for WWII, it was a giant public debt creation machine that happened to be the right thing to do.
    I happen to disagree with your view on wealth. Your red herring about luxury items is odd, are you making a globalization argument? Certainly the rich got richer,
    things got cheaper, but I am not sure that is wealth production.
    The problem was the tax cuts coupled with huge spending increases coupled with deregulation. We added $5T to the deficit and now it hurts to do the right thing. We will need to pay that back. As for a Depression that lasted until 1945? Well, I seem to recall reading about complete employment in WWII and then after a post war dip as the soldiers returned to civilian life.
    Now, I wish Obama would spend less time in Iowa trumpeting new cops and more time bringing all of the different departments up to proper staffing level and maybe telling Geitner to find another dude to run with tax policy. It just rings hollow.

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