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The Independent Institute
Commentary

Against Stereotype, Budget Hawks and War Hawks Edition


French President Francois Hollande, by reputation, is an unlikely budget hawk; as a candidate for office, he ran against austerity measures. But the realities of governing sometimes complicate politicians’ promises. After taking office, the euro crisis is now forcing Hollande to pledge to cut the French budget deficit down to 3% of GDP by the end of 2013. To keep the crisis from France’s door, although he is raising taxes too, he is preparing to cut at least $42 billion from the budget. Sounding rhetorically more like German Chancellor Angela Merkel or American conservatives and libertarians, Hollande argued that better finances would restore economic growth to a stagnant French economy—not that such austerity would bring about economic collapse. With government spending accounting for more than 56% of GDP, the French economy, like those of many nations in Europe and that of the United States, is being chronically dragged down by excessive government expenditure and debt. Hollande seems to realize, unlike many American politicians, that economic growth is unlikely to be restored until deficits and debt are reduced.

In the past, the divergence of Holland’s rhetoric and actions on austerity has seen its equivalent on the other side of the pond. In the mid-1990s, U.S. President Bill Clinton faced much the same situation of huge budget deficits and accumulating debt that had been irresponsibly created during the “conservative” Reagan-Bush era. Republicans, such as Dick Cheney, came to believe that “deficits don’t matter.” President Ronald Reagan patented the fake tax cut—when politicians win votes by cutting taxes but don’t want to lose votes by slashing government programs and spending on them. That spending has to be paid for by borrowing and even greater later tax increases, including interest payments, or by the inflationary printing of money. In fact, Reagan’s average annual net tax cuts as a portion of GDP weren’t even that great by historical standards—last among post-World-War-II Republicans—because Reagan partially offset his high-profile lowering of income tax rates with raised payroll taxes and other surreptitious hikes of more unobtrusive taxes. And Reagan’s record on cutting federal spending was abysmal—he actually increased the percentage of the economy consumed by federal spending.* Increasing spending while decreasing taxes leads to increased annual deficits and ballooning national debt. The average annual growth in national debt as a percentage of GDP under Reagan exceeded all post-Truman presidents, including the runners up—the Bushes. Also, he was the second worst president in the post-Truman era in increasing the average annual number of civilian federal employees as a portion of the population. Thus, the data indicate that Reagan’s reputation of shrinking government is a fraud.

Also, Reagan claimed to be, and is considered by many, including conservatives, a champion of national security. But as Mike Mullen—then-chairman of the Joint Chiefs of Staff under Barack Obama and the first such chairman to talk about the importance of the economy to the defense of the country—noted, national debt is “the single biggest threat to our national security” and if the government doesn’t “get control of the debt, there would be continued loss of confidence in America.” Thus should Reagan’s national security credentials be tarnished.

In contrast, the champion of deficit reduction and budget cutting in the post-Truman era is—surprisingly, if stereotypes hold sway—Bill Clinton. Clinton beat back the liberals in his administration and cut federal spending as a percentage of GDP by an average annual rate of more than 2%.

Some Republicans argue that congressional Republicans under Newt Gingrich really pressured Bill Clinton to cut spending, and certainly some credit is due them. But average annual spending as a share of GDP was reduced at a faster rate when Clinton had a Democratic Congress than after the Republicans gained control. In the post-Truman era, Clinton by far wins any contest among presidents for budget cutting—as demonstrated by his being the only president to reduce federal spending per capita. He also cut the number of civilian federal employees by 20% and was the leader in post-Truman presidents in the average annual reduction in the number of civilian federal employees as a portion of the population.

In contrast, during this modern era, George W. Bush, a protégé of Ronald Reagan in implementing fake tax cuts, was the second worst president on spending—increasing federal spending as a portion of GDP at an average annual rate of almost 2%. In terms of post-Truman presidents, George W. Bush and Ronald Reagan were the two worst in average annual growth in debt as a portion of GDP.

Significantly contributing to Bush’s explosion of debt was providing Medicare prescription drug coverage, the first major expansion of an entitlement since Lyndon Johnson, and, for the first time in American history, launching a war (actually two of them) without paying for it with tax increases.

Democratic presidents generally have the reputation—encouraged by Republicans—of being weaker on national security, but they (regrettably) have promulgated average annual reductions in the percentage of the American population serving in the active military far less than those of Republican presidents and have instituted average annual changes in defense expenditures as a portion of federal expenditures about the same as those of Republican chief executives.

In general, running against stereotype, during the post-Truman era, Democratic presidents have outperformed Republican presidents significantly in restraining average annual spending as a percentage of GDP, running lower average annual deficits as a portion of GDP, incurring less average annual debt as a percentage of GDP, and increasing average annual per capita GDP. The Republicans win only in holding down average annual revenues as a percentage of GDP—but as noted earlier, without accompanying spending cuts, these fake tax cuts merely balloon deficits and debt.

Unfortunately, all Democratic presidents don’t go against stereotype. The current incumbent, from the progressive wing rather than the Clinton-Carter wing of the Democratic Party, inherited a large deficit and a mound of national debt from George W. Bush and proceeded to make it worse. However, since, throughout American history, budget deficits are usually eventually closed, if Barack Obama wins re-election, with pressure from congressional Republicans, he will probably be compelled to continue his recent budget cutting and may very well end up with a somewhat better fiscal record than his predecessor, George W. Bush. Going against stereotype, however, is not always good: Obama expanded the already lost war in Afghanistan and unnecessarily overthrew Moammar Gadhafi in Libya. In short, stereotypes can be misleading—both at home and abroad.


Ivan Eland is Senior Fellow and Director of the Center on Peace & Liberty at The Independent Institute. Dr. Eland is a graduate of Iowa State University and received an M.B.A. in applied economics and Ph.D. in national security policy from George Washington University. He has been Director of Defense Policy Studies at the Cato Institute, and he spent 15 years working for Congress on national security issues, including stints as an investigator for the House Foreign Affairs Committee and Principal Defense Analyst at the Congressional Budget Office. He is author of the books Partitioning for Peace: An Exit Strategy for Iraq, and Recarving Rushmore.

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