That Used to Be Us_ How America Fell Behind in thted and How We Can Come Back - Friedman, Thomas L. & Mandelbaum, Michael [92]
Since the 1970s, actuaries had been issuing reports saying that, given the aging of the baby boomers, a fiscal crunch would occur in America sometime between 2010 and the 2020s. The Clinton administration’s economic policies were designed in part to generate budget surpluses that could pay down the deficit before the baby boomers retired and began to draw on Social Security and Medicare. As a result, from 1993 to 2001 America’s debt-to-GDP ratio went from 49 percent to 33 percent. Simply put, we cut our debt from half our annual output to a third. That used to be us.
Young Republicans
Then came the administration of George W. Bush. Alan Blinder, a Princeton economist and former vice chairman of the Federal Reserve, summed up what happened in a brief essay in The Wall Street Journal (December 17, 2010):
The nation took leave of its fiscal senses, and simply stopped paying for anything during President Bush 43’s eight years. Not for huge tax cuts—once again skewed toward the rich. Not for the Medicare drug benefit—which, in fairness, is skewed toward the poor. Not for two wars. That spree was followed by the financial crisis, the Great Recession, and the policy responses thereto—all of which blew up the deficit massively under President Obama.
This great loosening was brought about, in part, by a generational shift in the Republican Party. The old guard, the members of the World War II generation, which included Richard Nixon, Gerald Ford, George H. W. Bush, Bob Dole, George Shultz, and Ronald Reagan himself, believed in keeping the deficit under control—by raising taxes if necessary. They were succeeded by a new generation of Republicans, led by Newt Gingrich, Tom DeLay, Dick Armey, Dick Cheney, and George W. Bush. The new generation took as its hero an imaginary version of Reagan, one who, unlike the real fortieth president, believed that deficits don’t matter and opposed raising any taxes at any time under any circumstances, especially for the wealthiest Americans.
As noted, Bush’s first Treasury secretary, Paul O’Neill, was pushed out after resisting the administration’s decision to enact a $350 billion tax cut in 2003, having enacted a $1.35 trillion tax cut just weeks after entering office in 2001—at a time when the budget was essentially in balance. “I believed we needed the money to facilitate fundamental tax reform and begin working on unfunded liabilities for Social Security and Medicare,” O’Neill said in an interview with The Washington Post (May 1, 2011). The White House, he said, was focused on improving economic growth for the fourth quarter of 2004. “They wanted to make sure economic conditions were great going into the president’s reelection.”
Looking back on the whole period in an essay in The New York Times (July 31, 2010), David Stockman wrote:
In 1981, traditional Republicans supported tax cuts, matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment … Through the 1984 election, the old guard earnestly tried to control the deficit, rolling back about 40 percent of the original Reagan tax cuts. But when, in the following years, the Federal Reserve chairman, Paul Volcker, finally crushed inflation, enabling a solid economic rebound, the new tax-cutters not only claimed victory for