That would be the manly, the honorable thing to do. Admit he was wrong about what needed to be done to fix the U.S. economy.
What will he do? He will blame Standard & Poor’s. Or George W. Bush. Or the Tea Party. Or all three.
About George W. Bush. I have always been of the view that he spent too much money. (“Like a drunken Democrat,” I used to say: little did I know what was coming.) In my view, Medicare part-D (“Prescription drugs for seniors”) is a piece of feel-good fiscal irresponsibility that ranks up there with the epic disasters perpetrated by Lyndon Johnson. Indeed, the whole agenda of “compassionate conservatism” is redolent of a certain species of rancid idealism. It’s what happens when people of generally conservative disposition find themselves seized by a failure of nerve and, desperate to calm themselves, adopt the protective coloration of a liberal on one or another issue.
But, spend as he would, George W. Bush is not the reason Barack Obama will go down in history as President Downgrade. Really, no one cares that he is the first (partly) black president. (Besides, if Toni Morrison is right, Bill Clinton copped that prize.) The “first” that will be his legacy is this: he was the first president in our history to preside over a downgrade in the credit worthiness of the Untied States of America.
“Oh, but I inherited a mess from George W. Bush.” That’s what the president and his handlers will be saying for decades.
Let’s take a look at what he inherited from President Bush. Byron York, in the Washington Examiner, has the numbers. First, let’s look at the revenue side of the equation:
Revenues fell in Bush’s first two years because of a combination of the tech bust and the start of the tax cuts. But then things took off. After taking in $1.782 trillion in tax revenues in 2003, the government collected $1.88 trillion in 2004; $2.153 trillion in 2005; $2.406 trillion in 2006; and $2.567 trillion in 2007, according to figures compiled by the Office of Management and Budget. That’s a 44 percent increase from 2003 to 2007. . . . “Everybody talks about how much the Bush tax cuts ‘cost,’” says one GOP strategist. “We’re saying, no, they led to a huge increase in revenue.”Then there is the deficit. This year it is weighing in at more than $1.5 trillion. Here’s what it looked like under President Bush:
After beginning with a Clinton-era surplus in 2001, the Bush administration ran up deficits of $158 billion in 2002; $378 billion in 2003; and $413 billion in 2004. Then, with revenues pouring in, the deficits began to fall: $318 billion in 2005; $248 billion in 2006; and $161 billion in 2007. That 2007 deficit, with the tax cuts in effect, was one-tenth of today’s $1.6 trillion deficit.“Deficits went up in 2008,” Mr. York notes, “with the beginning of the economic downturn — and, not coincidentally, with the first full year of a Democratic House and Senate.”
“Not coincidentally,” indeed.
What about Standard & Poor’s? Back in April, Timothy “taxes-are-for-little-people” Geithner said there was “no risk” that the U.S. would lose it triple-A credit rating. (A piece of thoughtless irresponsibility, that — any school boy knows that there is always some risk. It was reminiscent of Barney Frank assuring us that there was nothing wrong at Fannie Mae and Freddie Mac.) When the downgrade came, the Department of the Treasury instantly convened a game of spin-those-numbers, claiming that the S&P analysts had based their rating on faulty assumptions and, consequently, that S&P’s projection of government spending was off by $2 trillion. “A judgment flawed by a $2 trillion error speaks for itself,” said a Treasury Department minion.
But was S&P’s judgment flawed? The rating agency’s response to the Treasury Department is worth pondering.
In response to questions, Standard & Poor’s today said that the ratings decision to lower the long-term rating to AA+ from AAA was not affected by the change of assumptions regarding the pace of discretionary spending growth. In the near term horizon to 2015, the U.S. net general government debt is projected to be $14.5 trillion (79% of 2015 GDP) versus $14.7 trillion (81% of 2015 GDP) with the initial assumption. . . .The emphasis is mine. “The lack of apparent willingness of elected officials as a group to deal with the U.S. medium term fiscal outlook.” Think about that. Behind the antiseptic prose is a moral and political condemnation of the first water. Our political elites have failed us dismally.
In the near term horizon, by 2015, the U.S. net general government debt with the new assumptions were projected to be $14.5 trillion (79% of 2015 GDP) versus $14.7 trillion (81% of 2015 GDP) with the initial assumption – a difference of $345 billion.
In taking a longer term horizon of 10 years, the U.S. net general government debt level with the current assumptions would be $20.1 trillion (85% of 2021 GDP). With the original assumptions, the debt level was projected to be $22.1 trillion (93% of 2021 GDP).
The primary focus remained on the current level of debt, the trajectory of debt as a share of the economy, and the lack of apparent willingness of elected officials as a group to deal with the U.S. medium term fiscal outlook. None of these key factors was meaningfully affected by the assumption revisions to the assumed growth of discretionary outlays and thus had no impact on the rating decision.
The response? If you’re Harry Reid you read S&P’s opinion that “the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges” and then conclude that Congress should address their “weakness” by raising taxes! “The action by S&P,” said Reid, “reaffirms the need” for us to raise taxes on all you slobs out there. Like the president, Harry Reid calls this a “balanced approach,” but the balance in question, as John Boehner observed, means “We spend more, you pay more.” (Incidentally, Harry Reid should get together with the Treasury Department to work out a consistent story. Just when Harry Reid was saying that the S&P downgrade meant Congress should raise taxes, the Treasury Department was saying the S&P analysts got it all wrong, in which case, presumably, nothing to worry about and Congress would not have to raise taxes: which is it, boys? Note that this is a situation in which both cannot be right but both can very easily be wrong.)
It’s worth thinking carefully about this brisk reveille that Standard & Poor’s has brought us. As Amilya Antonetti noted in her interview with Neil Cavuto, the business community was not surprised by the news. Mene Mene Tekel Upharsin: they had seen the writing on the wall for months. S&P issued a warning last spring, which prompted Timothy Geithner’s little “no risk” ejaculation. The narrative is now up for grabs. The stakes could hardly be higher. The United States is at a crossroads. One way, the way advocated by our political elites, is the Keynesian path. We travel that road endeavoring to spend, and tax, our way out of debt. We have grand, economy-wrecking schemes according to which every auto shall travel 56 miles on a gallon of gasoline. Coal will be taxed and regulated to oblivion. Light bulbs will be toxic, cast a sickly light, but be “energy efficient.” And all Americans will be dependent on the federal government for their basic necessities.
Alexis de Tocqueville came up with the name for that road, and F.A. Hayek made the phrase famous: it is the Road to Serfdom. Vice President Joe Biden said that the Tea Partiers “acted like terrorists” by having the temerity to criticize the recent decision to increase the federal debt by $2.5 trillion. Here’s the question: how much more proof do you need to see that business as usual in Washington is ruining the country? Federal debt at $16.7 trillion. Unemployment above 9 percent. The credit worthiness of the United States downgraded for the first time in history. Isn’t it time to wake up and smell the latte?