To pay for the Obama taxing and spending agenda, the country will need much more economic growth. Unfortunately, the rate of growth is slowing just when we need greater rates of growth.
It’s commonly thought that annual real (after-inflation) growth of three percent is required just to keep up with population. More than that is needed to restore the loss in middle-class income during Obama’s first term. But here’s what has happened to the rate of growth.
The direction of change in economic growth is moving in the wrong direction, and it’s far below what is needed. Darkening the horizon are the planned increases in spending, in particular ObamaCare, will be a further drag on the economy. Other Obama policies are distinctly anti-growth. It’s difficult to have an optimistic outlook.
Stephen Moore and Arthur Laffer told the story last summer in the Wall Street Journal:
The first is how much government spending fell during President Bill Clinton’s eight years in office and how low it was when he left office. When he became president in 1992, government spending was 23.5% of GDP, and when he left in 2001 it was 19.5% of GDP. President Clinton, in conjunction with a solid Republican Congress, cut government spending by more than any other president in modern times, and oversaw one of the greatest periods of economic growth and prosperity in U.S. history.
Sadly for fiscal conservatives, the biggest surge in government spending came during the last two years of President George W. Bush’s eight years in office (2007-2008). A weakened Republican president dealing with a strident Democratic Congress, led by then-House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, resulted in an orgy of spending.
Mr. Bush and Republicans in Congress capitulated to and even promoted each and every government bailout and populist redistribution canard put before them. It’s a long list, starting with the 2003 trillion-dollar Medicare prescription drug benefit and culminating with the actions taken to stem the 2008 financial meltdown — the $700 billion Troubled Asset Relief Program, the bailout of insurance giant AIG and government-sponsored lenders Fannie Mae and Freddie Mac, the ill-advised 2008 $600-per-person tax rebate, the stimulus add-ons to 2007’s housing and farm bills, etc. The script had it that greedy right-wingers were the cause of our collapse, and deficit spending and easy money the answer.
The numbers are mind boggling. From the second quarter of 2007, i.e., the first full quarter of a Pelosi-Reid dominated Congress and a politically weakened President Bush, to the second quarter of 2009 when President Obama assumed office, government spending skyrocketed to 27.3% of GDP from 21.4%. It was the largest peacetime expansion of government spending in U.S. history.
Following is an interactive visualization of federal revenues, expenditures, and the deficit as a percentage of gross domestic product that illustrates these trends. Use the visualization below, or click here to open it in a new window.