Friday, May 10, 2013

Spending: A Bipartisan Love Story #Libertarian

Spending: A Bipartisan Love Story:
As Nobel Prize winner and freedom fighter Milton Friedman often
reminded us, the true size of the government is measured by how
much it spends rather than by how much we pay in taxes. As we enter
Barack Obama’s second term, a look at government spending patterns
during the last few decades offers some relevant—and
surprising—insights.
With the one clear exception of President Dwight Eisenhower, all
Republican and Democratic administrations between 1945 and 2013
have increased spending from their predecessor’s final fiscal year
in office. (Fiscal years run from October 1 to the end of the
following September, making presidential ownership tricky during
transition years, though generally the federal government operates
under the departing executive’s budget.) What’s more, during the
last 30 years, Republican administrations have spent taxpayer money
at a much faster rate than Democratic administrations. Even Obama
has kept spending relatively flat compared to the likes of Ronald
Reagan and George W. Bush.
During his two terms in office the second President Bush
increased total spending by 53 percent in real terms, compared to
12.5 percent under Bill Clinton and a 2 percent reduction so far
under Obama (when giving his predecessor full credit for FY2009, as
we do for all departing presidents in this exercise). Some say Bush
had no choice but to expand military spending to combat terrorism
at home and abroad. But he also increased nondefense spending and
presided over the biggest expansion of Medicare since its creation
under LBJ.
And it’s Republicans, not Democrats, who were almost entirely to
blame for these 21st- century expansions, because during the first
half of 2001 and all of the 2003–07 period the GOP maintained full
control of both the White House and Congress. With Washington
unified, the purported party of limited government increased total
spending by more than 20 percent in real terms, an average of 5
percent a year.
The record of Ronald Reagan, that eloquent spokesman for limited
government, doesn’t look too great either. During his first term,
the man who had said “it is my intention to curb the size and
influence of the federal establishment” fattened the budget by 22
percent in real terms, including a 41 percent increase in
defense.
In March the turncoat Republican economist Bruce Bartlett
tweeted that “history books will say Obama was the 2nd most
fiscally conservative president since Eisenhower (after Clinton).”
He has an argument: Spending under Obama has not increased as fast
as it did under the previous administration and has even dropped a
bit from a high in FY2009 (even though some of that spending was
due to Obama’s policies). This flat-lining is due in part to the
lack of an actual budget for the last four years and the expiration
of some stimulus provisions. If the sequestration cuts that just
went into effect are not reversed, Obama’s numbers will look even
better, despite the fact that he opposed those cuts.
Obama is nobody’s fiscal conservative. His signature legislative
achievement, ObamaCare, will trigger major new spending, most of
which will kick in after his presidency is over—meaning that his
fiscal irresponsibility will show up in someone else’s numbers. Yet
there is no doubt that spending so far has flattened under Obama in
a way most of us did not anticipate.
Why does the federal government grow at some times and not
others? It could be that spending slows down when Washington is
divided. Under both Clinton and Obama, Republicans regained control
of Congress during the first midterm election and may have
restrained the president from indulging his desire to spend
more.
Republicans Nixon and Eisenhower both faced Congresses
controlled by Democrats. Although Nixon presided over large
expansions of government power, real total spending rose by only 5
percent during his time in office. Under Eisenhower it shrank by 4
percent.
In a 2004 paper presented at the annual meeting of the Public
Choice Society, Cato Institute economists Bill Niskanen and Peter
VanDoren wrote that “the rate of growth of real federal spending in
the years since World War II was lower during administrations in
which at least one house of Congress was controlled by the other
party.” In November 2010, my Mercatus Center colleague Matthew
Mitchell produced a chart showing that during the post World War II
era inflation-adjusted per capita spending grew almost twice as
fast under united governments than under divided governments. While
there isn’t enough data to declare the matter settled, it does
illustrate an interesting trend.
President Clinton is an exception to this rule. In the first two
years of his first term, he and his Democratic Congress increased
spending at a lower rate than during the following six years when
Republicans controlled Congress.
Wars also impact spending dramatically. Government was cut
dramatically after the end of World War II under Harry Truman and
the Korean War under Eisenhower. Nixon’s budgetary restraint can be
traced to the end of the Vietnam War, which resulted in a 30
percent reduction in defense spending. Both George H.W. Bush and
Clinton oversaw large defense cuts at the end of the Cold War.
Republicans constantly remind us of their devotion to expanding
the defense budget and their commitment to cutting nondefense
spending, but the historical data show that the only thing they are
actually willing to cut is military spending. They are as eager to
increase nondefense spending as their friends on the other side of
the aisle. (An exception to that rule is Reagan, who managed to cut
nonmilitary spending by 10 percent during his time in office.)
When trying to understand the differences in spending between
administrations, the president’s ideology or party is a very poor
predictor of how much the government will grow. Obama ran for
re-election as a big-government Democrat, but his spending pattern
(until now) did not quite fit his ideology. By contrast, Reagan ran
as a fiscally conservative candidate and George W. Bush claimed to
believe in small government, but both oversaw large spending
increases.
Out-of-control spending is a bipartisan problem. With a few
exceptions, no matter who occupies the White House, the government
tends to become larger and more expensive. But in recent years
history suggests that it’s likely to grow faster with a Republican
president. Ideology predicts very little when it comes to spending.
For this reason, libertarians need to continue fighting on both
sides of the aisle. We must not be fooled by Republicans’
small-government rhetoric.