Spending with the Best of 'Em: The current president is no tightwad- unfortunately

National Review, July 14, 2003 by Kevin A. Hassett

In the 2000 Republican primary, Steve Forbes told voters that they should reject George W. Bush because he was too liberal. He backed up his claims with statistics showing that government spending in Texas had increased by 36 percent while Bush was governor. The increase, Forbes noted, was twice that accomplished by the Clinton administration. Forbes added that Bush "talks like a conservative but he governs like a New Democrat."

Statistics generated by a political campaign should always be viewed skeptically, and Forbes certainly presented the Texas numbers with a view toward maximizing their shock value. But the charge that Mr. Bush is not wholeheartedly committed to the Republican ideal of a lean government can now be evaluated against more data. The facts are striking, and they make Mr. Forbes's warnings look prescient.

Under the current Bush budget, federal spending will have increased by 19.6 percent over the first three years of the administration. Since government spending is growing much faster than the economy as a whole, the share of our national income devoted to Leviathan has increased markedly, from 18.4 percent to 19.9 percent. Cato Institute economist Veronique de Rugy notes that this dramatic surge is virtually unprecedented in the history of government spending in the U.S. According to de Rugy's research, three of the five biggest increases in government spending in history have all occurred during the first three years of the Bush administration; the other two occurred during the Second World War. That sounds pretty bad, but even these numbers undoubtedly understate the problem, since they do not account for the huge prescription-drug benefit President Bush is working hard to push through Congress.

What components of government spending account for the increase? The biggest part of the story is national defense. Defense spending had been cut sharply under President Clinton, and Bush administration officials warned from the outset that there was a lot of catching up to do. Given the challenges facing our military in the post-September 11 world, it is necessary and prudent to increase military spending. Indeed, it is fairly common for Republican administrations to inherit from Democrats a military that has been allowed to wither. Over the first three years of the Reagan administration, defense spending increased by about the same percentage as it has under President Bush.

Bush's devotion to social programs, however, is a departure from the Reagan formula. President Reagan cut non-defense spending sharply in his first years in office; under this president, it has rocketed up. While the War on Terror is obviously part of the story, Bush has also endorsed extremely big-ticket farm and education bills, and has been unable or unwilling to halt the growth of spending in just about any corner of the budget. If a prescription-drug bill passes this year, the administration will have promoted and passed a significant expansion of the welfare state in each of its first three years. Were a Democratic regime to spend like this, Republicans would be grabbing their pitchforks and taking to the streets.

Republicans seem content to allow Bush to purchase popularity with taxpayer dollars. Politically, the strategy is ingenious. By enacting popular Democratic programs such as prescription-drug coverage, the president neutralizes his opponents in 2004, and (he hopes) increases substantially the odds of a Republican sweep.

But such calculations are nonetheless troubling. Conservatives might shudder at the thought of "President Howard Dean," but it is hard to see exactly what has been gained if the strategy employed to keep him out of the White House is to adopt all of his policies in advance. More importantly, such actions may well come back to haunt the president.

Here's why. Most political analysts agree that the Democrats' best hope for victory in 2004 is a weak economy. A burgeoning academic literature suggests that-contrary to the claims of John Maynard Keynes-soaring government spending harms the economy, weakens economic growth, and increases unemployment. Economists discovered this in a large-scale effort to better understand the origins of the differences across countries in economic growth. After the data were pooled, a striking pattern emerged: Countries with large governments grow much, much more slowly than countries with small governments. The relatively small size of our government is the single biggest reason our economy has outperformed the economies of Europe. And this relationship between big government and economic growth is intuitively quite plausible. When government takes a large share of the pie, there is a sharp reduction in entrepreneurial activity. Likewise, when social programs offer workers generous retirement benefits, they retire early, and the resulting reduced work effort leads to lower output.

The result is so widely accepted that a recent study released by the European Union's Directorate-General for Economic and Financial Affairs suggested that the best way for stagnating European countries to stimulate economic growth would be to reduce government spending. It is reasonable to conclude that soaring spending in the U.S. may well reduce economic growth, and increase the chances that a poor economy will harm Republicans in future elections.