Tag: george bush

A Fiscal Train Wreck

That is the title of a 2003 New York Times column by economist Paul Krugman. The gist of his column was that the Bush tax cuts and future entitlement program liabilities would usher in calamitous deficits. Setting aside the tax cut and entitlements issue, Krugman’s comments on the dangers of deficits are interesting considering seven years later Krugman is one of the most prominent supporters of massive deficit spending to stimulate the economy.

Here are some selected Krugman quotes from the column:

With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

Two years ago the administration promised to run large surpluses. A year ago it said the deficit was only temporary. Now it says deficits don’t matter. But we’re looking at a fiscal crisis that will drive interest rates sky-high. A leading economist recently summed up one reason why: ‘When the government reduces saving by running a budget deficit, the interest rate rises.’ Yes, that’s from a textbook by the chief administration economist, Gregory Mankiw.

But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar. It won’t happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.

Although this shouldn’t be construed as an endorsement of George Bush’s fiscal policies, the deficit for fiscal year 2003 when Krugman wrote his column was $378 billion. The Congressional Budget Office just reported that the deficit for the first quarter of FY 2010 was $434 billion.

The following chart shows the annual deficits from fiscal years 2002 through 2010 (projected). For 2009 and 2010 the first quarter deficit is also shown. In short, the two most recent first quarter deficits have been about $100 billion higher than the average annual deficits run from 2002 to 2008.

In FY2003, the deficit was 3.4 percent of GDP – for FY2010 it’s projected to be 10.6 percent. According to the President’s optimistic FY2011 budget, annual deficits won’t fall below 3.6 percent of GDP at any point in the next ten years.

Yes, Krugman believes that large deficit spending is necessary to turn the economy around. But that doesn’t change the fact that his dire warnings about deficits in 2003 should apply to today’s even larger deficits, especially now that we’re even closer to an entitlement crisis. However, Krugman recently penned a column warning against “deficit hysteria” in which he makes comments that are more than just a little at odds with his 2003 column:

These days it’s hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit. The deficit threatens economic recovery, we’re told; it puts American economic stability at risk; it will undermine our influence in the world. These claims generally aren’t stated as opinions, as views held by some analysts but disputed by others. Instead, they’re reported as if they were facts, plain and simple.

Yet they aren’t facts. Many economists take a much calmer view of budget deficits than anything you’ll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe.

Scratching your head?  I am too.

Not the Change We Hoped For

express-coverBarack Obama first became a credible presidential candidate on the basis of his antiwar credentials and his promise to change the way Washington works. But he has now made both of George Bush’s wars his wars. The Washington Post’s front-page analysis began, “President Obama assumed full ownership of the war in Afghanistan on Tuesday night…” The cover of the tabloid D.C. Express was even more blunt.

Speaking of Iraq in February 2008, he said, “I opposed this war in 2002. I will bring this war to an end in 2009. It is time to bring our troops home.” Responding to Hillary Clinton’s criticisms in March 2008, he said, “I will bring this war to an end in 2009, so don’t be confused.” Now he is promising to end the Iraq war in 2011, and to begin a withdrawal from Afghanistan in that year. Not the change we hoped for.

President Obama promises that after all this vitally necessary and unprecedented federal spending, he will turn his attention to constraining spending at some uncertain date in the future. And now he says that he will first put more troops into Afghanistan, and then withdraw them at some uncertain date in the future (“in July of 2011,” but “taking into account conditions on the ground”). Voters are going to be skeptical of both promises to accelerate and then put on the brakes later.

Of course, John McCain thinks that even a tentative promise to get out of this war after a decade is too much. “Success is the real exit strategy,” he says. And if there’s no success? Then presumably no exit. Antiwar voters may still find a vague promise of getting the troops out of Afghanistan three years after the president’s inauguration preferable to what a President McCain would have promised.

But as Chris Preble wrote yesterday, this increase of 30,000 troops – or 40,000 – is not going to win the war. The U.S. military’s counterinsurgency doctrine says that stabilizing a country the size of Afghanistan would require far more troops than anyone is willing to invest. So why not declare that we have removed the government that harbored the 9/11 attackers, and come home?

The real risk for Obama is becoming not JFK but LBJ – a president with an ambitious, expensive, and ultimately destructive domestic agenda, who ends up bogged down and destroyed by an endless war. Congress should press for a quicker conclusion to both wars.

Bush v. Obama on Diplomacy

The Hill’s Congress blog has a regular series that provides policy experts a forum to discuss current topics of the day. This week, the editors posed this question:

President Obama has taken a very different approach to diplomacy than President Bush. Does the new approach serve or undermine long-term U.S. interests?

My response:

What “very different approach?” Sure, President Bush implicitly scorned diplomacy in favor of toughness, particularly in his first term. But he sought UN Security Council authorization for tougher measures against Iraq; a truly unilateral approach would have bombed first and asked questions later. By the same token, President Obama has staffed his administration with people, including chief diplomat Hillary Clinton and UN Ambassador Susan Rice, who favored military action against Iraq and Serbia in 1998 and 1999, respectively, and were undeterred by the UNSC’s refusal to endorse either intervention.

There are other similarities. George Bush advocated multilateral diplomacy with North Korea, despite his stated antipathy for Kim Jong Il. President Obama supports continued negotiations with the same odious regime that starves its own people. Bush administration officials met with the Iranians to discuss post-Taliban Afghanistan and post-Saddam Iraq. In the second term, President Bush even agreed in principle to high-level talks on Iran’s nuclear program. President Obama likewise believes that the United States and Iran have a number of common interests, and he favors diplomacy over confrontation.

This continuity shouldn’t surprise us. Both men operate within a political environment that equates diplomacy with appeasement, without most people really understanding what either word means. Defined properly, diplomacy is synonymous with relations between states. As successive generations have learned the high costs and dubious benefits of that other form of international relations – war – most responsible leaders are rightly eager to engage in diplomacy. Perhaps the greater concern is that they feel the need to call it something else.

Getting the Opponent to React in Foolish and Self-Defeating Ways Is One of the Primary Goals of Most Terror Campaigns

Stephen Walt has a great blog post up at ForeignPolicy.com.

I particularly appreciate how he recognizes that terrorists seek and profit from overreaction on the part of the victim state:

If our leaders react to every terrorist incident as if it’s a monumental disaster, and if they hype the terrorist threat for political advantage – as George Bush and Dick Cheney did – the public will surely respond by demanding that we throw more resources at the problem than is prudent. Getting the opponent to react in foolish and self-defeating ways is one of the primary goals of most terror campaigns, of course, because these blunders can help the terrorists win victories that they could not achieve otherwise. We did more damage to ourselves when we invaded Iraq than Osama bin Laden accomplished on 9/11, and an open-ended commitment in Central Asia could easily compound that error.

You don’t have to believe that the Bush Administration wrongly sought political advantage - they may have believed the hype or believed that hyping threats was good policy - to recognize that hyping terror threats advances terrorists’ goals and damages our own interests.