Posted 2/26/2014 07:48 am
Updated 6 months ago
A terrible thing almost happened two weeks ago. In the midst of Arkansas' attention on the private option, U.S. Senate Republicans led by Ted Cruz of Texas were nearly successful at thwarting President Obama's attempt to raise the debt ceiling.
Fortunately, 12 Republicans, including their leadership in the Senate, voted to break a filibuster, and the bill to increase the debt ceiling passed on a party line vote, 55 to 43. That ended the prospect of another costly government shutdown and permitted the government to avoid default.
The matter of the federal budget deficit and the public debt has been parceled out to partisans without any meaningful discourse over how the nation got to this point, or why. With a Democrat in the Oval Office, it’s now Republicans’ turn to wag their finger at the president over spending. (1)
As Republicans jockey for position in advance of the 2016 elections, the issue of the economy remains top-of-mind for voters. Concern over the federal deficit polls higher than poverty, education, immigration and war.
So let's reconsider how the deficit and the public debt grew at the start of the new millennium and continue growing today.
In 2001, George W. Bush entered the White House with a budget surplus and a public debt (i.e. debt borrowed by the federal government and held by investors through Treasury notes and other securities) of $5.95 trillion. "Many of you have talked about the need to pay down our national debt. I listened, and I agree," Bush said in an address to Congress. "We owe it to our children and our grandchildren to act now, and I hope you will join me to pay down $2 trillion in debt during the next 10 years."
But the opposite happened. The horrific terrorist attacks of Sept. 11, 2001, the two land wars that followed and the global financial crisis played a significant role in altering the country's balance sheet.
Historically, it's common for the deficit and the debt to grow in times of war. While defense spending spiked during the wars in Korea and Vietnam, it reached unprecedented levels in the aftermath of 9-11, and peaked at around $750 billion near end of Bush’s second term.
After taking office, Obama maintained war spending and engagement at Bush-era levels as America continued to fight in Iraq and Afghanistan.
In fact, early in his first term, Obama earned praise from his, and Bush’s, defense secretary, Robert Gates. As Gates said in his illuminating book "Duty: Memoirs of a Secretary at War," "... the president's approach to the military from the day he was elected has been pitch perfect." (2)
Late in 2008, in response to the global financial crisis, Bush lobbied Congress to authorize $700 billion to purchase distressed assets and provide cash injections to several American banks. The government ultimately spent $432.8 billion on the Troubled Asset Relief Program, and the Fed added $2.2 trillion of loans and securities to its books.
Certainly Bush and Fed Chairman Ben Bernanke's efforts staved off collapse, although the Great Recession followed. As Bush's Treasury Secretary Henry Paulson said, "It's hard to get kudos for what didn't happen." (3)
To combat the continued reality presented by that crisis, Obama pumped more money into the economy. The American Recovery and Reinvestment Act of 2009 infused $831 billion in stimulus. By 2011, the Congressional Budget Office determined that it created millions of new jobs, increased real GDP, and reduced unemployment, although the prolonged recession remained.
Bailouts, Tax Cuts & Health Care
Following Bush's $13.4 billion temporary commitment from a few months prior, Obama succeeded in an $80 billion rescue of General Motors and Chrysler, despite former Republican presidential candidate Mitt Romney's preference for a "managed bankruptcy" of struggling domestic automakers.
Even the controversial Bush tax cuts found a measure of support from Obama, an outcome dictated by the state of the economy at the time, even though the Congressional Budget Office concluded they would drive deficits for 20 years.
Bush, like Obama, also pursued a costly domestic health care initiative. The Medicare Modernization Act of 2006 was Bush's effort to subsidize the cost of prescription drugs and insurance. It was expensive and unpopular, even less popular than the Affordable Care Act. But seven years later, after modest reform, Medicare Part D is used by millions of seniors and viewed far more favorably, despite a calamitous rollout.
America has run consecutive budget deficits for more than a decade and it has borrowed more money than ever before during that time. In the Bush years, Congress voted to increase the debt limit seven times to $5.7 trillion, a growth rate of 93 percent. In the Obama years, Congress also voted to increase that limit seven times to $12.4 trillion (excluding intragovernmental holdings), a growth rate of more than 100 percent. There is consistency in those numbers.
Don’t get me wrong. The United States faces a sizable budget deficit and a substantial public debt. But the deficit is declining and the public debt, while high, is less costly to service than it was in 2001, and well below World War II limits as a percentage of GDP. (4) So I find the state of things less grim than Republicans make it out to be.
With that being the case, and with the debt ceiling debate off the table until 2015, we should view the history of our deficit and our public debt through the lens of two presidencies responding to extraordinary economic and military challenges.
Piling it all on Obama may serve partisan interests, but it suggests an incomplete understanding of the difficult course America's been on, and is a misstatement of our complex reality.
(1) Remember, it was Dick Cheney who said, "Reagan proved deficits don’t matter," although that's really beside the point now.
(2) I probably don't have to tell you that Gates' opinion would change over time.
(3) By 2014, the government had recovered all its costs for TARP plus $10.9 billion.
(Blake Rutherford is vice president of The McLarty Companies and previously was chief of staff to the Arkansas attorney general. You can follow him on Twitter at BlakeRutherford. His column appears every other Wednesday in the weekly Government & Politics e-newsletter. You can subscribe for free here.)