What Happened to The Budget Surplus of 2000?


dollars pic.jpgPaul Krugman has a powerful slap at the emerging narrative that America’s working families and average citizens wanted something for nothing and thus precipitated the economic disaster of recent years. Instead, Krugman shows what powerful interest groups can do.
Krugman writes that what brought the country down were reckless tax cuts, wrongheaded military crusades, and structural corruption leading to a deregulation-dizzy financial collapse:

What happened to the budget surplus the federal government had in 2000?
The answer is, three main things. First, there were the Bush tax cuts, which added roughly $2 trillion to the national debt over the last decade. Second, there were the wars in Iraq and Afghanistan, which added an additional $1.1 trillion or so. And third was the Great Recession, which led both to a collapse in revenue and to a sharp rise in spending on unemployment insurance and other safety-net programs.
So who was responsible for these budget busters? It wasn’t the man in the street.
President George W. Bush cut taxes in the service of his party’s ideology, not in response to a groundswell of popular demand — and the bulk of the cuts went to a small, affluent minority.
Similarly, Mr. Bush chose to invade Iraq because that was something he and his advisers wanted to do, not because Americans were clamoring for war against a regime that had nothing to do with 9/11. In fact, it took a highly deceptive sales campaign to get Americans to support the invasion, and even so, voters were never as solidly behind the war as America’s political and pundit elite.
Finally, the Great Recession was brought on by a runaway financial sector, empowered by reckless deregulation. And who was responsible for that deregulation? Powerful people in Washington with close ties to the financial industry, that’s who. Let me give a particular shout-out to Alan Greenspan, who played a crucial role both in financial deregulation and in the passage of the Bush tax cuts — and who is now, of course, among those hectoring us about the deficit.
So it was the bad judgment of the elite, not the greediness of the common man, that caused America’s deficit.

Americans are having to pay for what they allowed to happen — and they did allow the crew that ran the White House to get away with what it did. I believe that not that much has changed, though, and that the problems Krugman outlines remain very embedded in the political order today.
— Steve Clemons


15 comments on “What Happened to The Budget Surplus of 2000?

  1. questions says:

    I haven’t seen this linked all over heaven and the internet, so I’ll link it here at least!
    The idea that there is some natural state, apart from human intervention, in any part of the universe is one of those oddities of thought that pop up pretty routinely. Strains of environmentalism seem to assume that there would be a natural order outside of human kind, and I’ve seen similar thoughts in a range of disciplines — if we just didn’t have laws or regulations, there would be some utopic natural situation that would be wonderful! At some level, Gonzalo thinks this in The Tempest, but in fact, Shakespeare concludes, in Caliban’s voice, that labor, “seek[ing] for grace” and honesty are far better for us than magic, laziness, and plenty.
    We do better when we have work to do.
    And as goes the island in the Tempest, so goes the continent we live on.
    We do better with honest work, self control, some discipline, and no “magic books” or staffs or garments to distract us from what we need to be doing.
    Instead of Prospero’s books and staff, think about the power our billionaire’s have to live out their uncontrolled fantasies. From corporate boards to buying out econ departments, from mandating curricula to canceling good development projects, our billionaires and their politico minions have too much power, too little concern about the effects of their power, too much sense of themselves and too little awareness of how much they harm their friends.
    The turning point in the Tempest comes when Ariel looks at Prospero and describes Gonzalo’s pain. Gonzalo is Prospero’s friend, and savior. Prospero is the inflicter of the pain. Ariel, a non-human non-pain feeling spirit “feels” Gonzalo’s pain more than the all too human Prospero does. Prospero has an epiphany, and releases the spell and learns to forgive and to do honest labor rather than to give in to the temptation to do magic.
    Would that the Republicans could do the same. Learn that they are hurting their friends, their constituents, the people they are supposed to be helping. Learn that the tears they are causing are real. Learn that indeed we need honest labor, not rent-seeking behavior.
    (The pay to delay logic taken to its extreme would be that generic drug companies never actually manufacture drugs, they just suck in money from the threat of manufacturing drugs…. And of course, the Big Pharma company doesn’t lose a penny; it’s just another cost passed on the the sickest of us….)
    There is no natural state in which the powerful rule, in which the economy always works, in which oddities and bizarre things and unusual things never happen. It is not a natural order that you’re either rich or you work for the rich (that’s Rand Paul!), it’s not the natural order that if we don’t regulate we get a utopic economy.
    There’s no nature there. Or here.


  2. questions says:

    “”We were able to get six more years of patent protection,” Baldino crowed publicly. “That’s $4 billion in sales that no one expected.””
    It’s called pay-for-delay. And both BIG Pharma and medium pharma benefit.
    Insurance and the gov’t (that’s the taxpayers) just funnel more and more money to BIG pharma.
    The underlying threat, of course, is that no one will develop helpful new drugs unless we pay them that unanticipated 4 billion extra in sales.
    I think we need a new pay structure for drug development and marketing.
    Salon WarRoom has up an incredible piece on labor and race and health care in the NFL. Really fine reporting and analysis.
    Not sure the end of college football for a season will do more than stop a whole bunch of young black men from attending any kind of school, and I’m sure there’s more fantasy than reality in the whole hope of getting people to see what’s really going on in college and pro sports, still and all, it’s worth the click.
    Pareene declares the end of Trump’s campaign, and apparently, Obama “suggests” that we could put in a moat complete with alligators for our southern border! I think that digging that moat would create jobs! And raising the alligators would create more jobs! And maybe Trump could team up with Palin for some kind of alligator-moat reality TV show — could they “fire” alligators? Could Palin start a whole movement for fierce alligator-mammas? The possibilities are endless.
    And from Boehner’s very own district:
    “Fourteen percent of Speaker Boehner


  3. questions says:

    A few more DeLong thoughts…..
    What are we really buying when we pay tuition? Brand names, bragging rights, potential life mates, that feeling you have when you see yourself on a campus and you’re sure you’re in the right place, a set of requirements you think you can pass, campus security, urban or rural experience, your life’s identity, maybe some classes, a curriculum that lets you change who you are, as you inevitably will do, a glimpse of some famous dude who never breathes the same air as an undergrad but still you’re a part of it, and easier shot at grad school or a job, networks…..
    Or you buy something you can afford.
    The market provides both. Expensive stuff for people who are pretty sure what they are buying is worth it, and cheaper stuff for people who are either satisfied or unhappy.
    We bid up prices on all sorts of things well beyond what we need to because of those intangibles.
    Also, on the notion of attracting additional tuition paying bodies, nope, not for the HYPSM etc schools.
    There are formulae for acceptable numbers of matriculating students. If you go beyond a certain range, you have to add dorms, dining halls, gyms, professors, class rooms, transportation, health center services, administrative services, computer labs, and more and more sections of a range of classes. You also end up, perhaps, screwing up your rankings by taking a higher percentage of applicants. Mustn’t debase the brand…..
    It’s a guessing game to figure out in any year just how many people will show up, just how many people will end up majoring in popular fields. Oversubscribing a major is a, umm, major hassle. Too many students and not enough dorm spaces is also a pain. Schools rent out hotel space sometimes to manage.
    To the extent that there is some price-bidding, it’s through financial aid. So, at the margins there’s a bit of this. But attracting lots of extra students is not worth the cost, especially since the tuition they pay doesn’t necessarily cover their costs for the 4 years.
    A more formal look at the school market would show that as long as the schools can get the right number of tuition paying bodies, they don’t have much need of screwing with the system.
    And that look would likely show that it’s worth having very well educated people, even if we end up paying a little more than we might.
    Sometimes what looks like a bargain really isn’t one.


  4. questions says:

    DeLong on Yglesias on costs of education…
    He writes:
    “I do observe that education and medical care are the two large sectors in which the private market did not have a strong presence a century ago and are also the two large sectors where market competition does not seem to produce lower prices. And I feel that there must be some connection.”
    I’d suggest a few things. There’s the whole “cost disease” issue that I think is likely a significant part of things. Both are labor intensive, not given over to technological revolutions that allow more people to be served by fewer workers.
    Both are used sporadically, and both make life vastly better for those who pass through them. Medicine keeps you alive, and education helps you think, enjoy, and increase your productivity.
    You’re in higher education for 4-10 years, and you’re “in” medicine for less, in general.
    The people who provide these services are motivated by vocation, not by big money, so they really aren’t trying to find ways to cram 50 patients into a single x-ray (to save on film?) and they aren’t trying to cram 500 students into upper division courses where the goal is that each student be known, have time to talk and grow and think out loud.
    And, indeed, there are many cheaper alternatives for both, so it’s not like the 58 thousand dollar year is the only way to do it. Community college is very very inexpensive; branch campuses of state universities aren’t unaffordable; and there’s always the part time, class at a time version that costs money over time, but not all at once. Further, there is significant financial aid available, and education is often a multi-generational effort. Grandparents help with college savings, tuition payments, or a computer after high school or whatever.
    For medicine, we save money by self-medicating, going to clinics, reading things online, and doing without, sometimes. Those who have the means will have insurance, so there’s some cost spreading there as well.
    There is a secondary job for education in this country, and that drives some of the cost. Basic research, the intellectual development of some professors, and some amount of our creative and artistic output are subsidized by tuition paying bodies. That adds some cost. Probably it’s worth it, since much that is amazing has come from university faculty, from students who learn from faculty, and from the cities and towns in which there are universities.
    Perhaps it’s actually a bargain?
    I’m not sure that setting up a competitive system in which the goal is to educate students to some vague maximum standard at the cheapest cost possible (kind of what K-12 does) is really the goal.
    The current system has evolved a range of paths through that seem to work for large numbers of people. To the extent that some students get in over their heads with debt, it may be more that they are over-encouraged by brand names and overly eager administrators and perhaps corrupt student loan services. But there are fairly inexpensive ways to get through school already within the system.
    The few schools in the 50 grand a year bracket offer significant amounts of aid, don’t mandate that students actually matriculate (the cost is borne voluntarily), and they make those who really do indeed have the money actually pay the money. It’s a little odd to think through, but there really are people who can afford to spend nearly 60 thousand dollars sending each of their kids to HYPSM and the others. They should pay it.


  5. DonS says:

    I had a comment on this post which apparently got lost in the shuffle.
    The essence was that these “policy elites”, i.e., plutocrats, have managed to construct a narrative that politicizes issues of economic disaster for 99% of Americans along ideological lines that polarize the country. In order to address the real economic concerns of that 99%, the facts must be decoupled, deconstructed, unwound, whatever, from the artificial political architecture that obscures their disastrous consequences.
    Now who do we think might do that uncoupling when the “policy elites”/ plutocrats hold the levers of power?


  6. JohnH says:

    Sadly, you cannot have a democratic system under capitalism. The word says it all. The well being of the people doesn’t matter. It’s all about capital. Wealth rules.
    I have chosen to remain a registered Democrat, because occasionally you find a candidate (in the primaries) who is not totally beholden to monied interests.
    Also, I occasionally get to tell democratic fundraisers why I adamantly refuse to give them any money.
    In the general election, I vote third party as often as possible. I hope others will, too.


  7. questions says:

    Thoma’s links of the day are all great!
    My current favorite is the David Cay Johnston link. As he notes, spending less in taxes for health care does not mean spending less in money for health care. It’s worth remembering.
    Ryan’s Republican Festival Budget is more about cost shifting than it is about cost saving.
    The “plan” I suppose is that the market will come through with affordable policies for 75 year old cancer and heart disease and diabetes and hypertension patients (all at once!). But, really? Without the pre-existing condition and rescission protections from PPACA? Because, of course, PPACA has to be undone to make the Tea Party happy.
    And out there somewhere (Milbank??) is an amusing musing on what it must be like to be John Boehner right about now! The poor guy is now a tax and spend Republican in Name Only kinda guy! Live by the Tea Party, get booted out by the Tea Party. That’s what I always say.
    And from the Guardian:
    “The US and Pakistan struck a secret deal almost a decade ago permitting a US operation against Osama bin Laden on Pakistani soil similar to last week’s raid that killed the al-Qaida leader, the Guardian has learned.
    The deal was struck between the military leader General Pervez Musharraf and President George Bush after Bin Laden escaped US forces in the mountains of Tora Bora in late 2001, according to serving and retired Pakistani and US officials.”
    You know, it’s really hard to know what’s what with Pakistan. But this would make a fair amount of sense. And with the “permission” comes the right of denunciation and the outing of 1-3 spies in “retaliation” for the home crowd.
    Genuine disingenuineness. It’s funny what it takes to run a faction-riven party, country, or group of pre-teens.
    AND THE REAL DIG!!!!!!
    “Gilani paid lip-service to the alliance with America and welcomed a forthcoming visit from the US secretary of state, Hillary Clinton, but pointedly paid tribute to help from China, whom he described as “a source of inspiration for the people of Pakistan”.”
    Cue the sharp intake of breath music!
    (h/t nakedcapitalism)


  8. Paul Norheim says:

    Just a few words to Dan Kervick’s post above on this thread:
    As a Scandinavian, I usually try to avoid commenting on strictly domestic US affairs at TWN. But what Dan is addressing
    above – intolerable economic inequality; the permanent clash between an extremely individualistic world view and one
    that emphasizes the societal dimension, and the political consequences of those opposing ideologies – is present in
    every country on all continents; and even on a global level. And the rift between those who argue for a keynesian
    stimulus and those who see deficit and debt as the main problems runs, as we all know, through the European
    continent as well. (The specific conditions in Norway are exceptional, and thus less relevant for the issues discussed
    Dan Kervick’s view is coherent, and he addresses what everybody from the left to the right argue will determine the
    outcome of the next presidential election in 2012: unemployment and the state of the economy as felt by ordinary
    However, one of the main points in Steve’s post and the Krugman quote from NYT, is that the current problems in the
    US also have a significant foreign policy dimension – in short, the money spent on wars abroad. And except for the
    ongoing partisan fight regarding the US budgetary deficit ceiling, one could argue that it is highly likely that the focus of
    the US government and media in the coming, say six to twelve months will not be domestic issues, but US foreign
    policy. Suffice it to mention a couple of extremely important (on a symbolical, as well as a “real” level), spectacular, and
    unpredictable events:
    1) The ongoing revolution in the Middle East.
    2) Going after the Al Qaeda leadership in Pakistan, and the Af-Pak dimensions of this hunt.
    I’ll quote someone neither Dan or I usually agree with – GOP commenter Ross Douthat, who in my view, on the same
    day as Krugman published his quoted op-ed in the NYT, nailed it in the following two quotes:
    “For those with eyes to see, the daylight between the foreign policies of George W. Bush and Barack Obama has been
    shrinking ever since the current president took the oath of office. But last week made it official: When the story of


  9. questions says:

    Bonddad has his own blog! Who knew?
    He was on kos, then with Nate Silver, and now he has his own place. Endless graphs!


  10. Dan Kervick says:

    Today I walked out of the Democratic Party.
    I went to my Town Clerk


  11. DakotabornKansan says:

    As David Stockman, director of the Office of Management and Budget under Reagan said,


  12. Kathleen says:

    There were several things that jumped out at me while reading Ron Susskind’s book “The Price of Loyalty” some years back. When former Secretary of the Treasury during Bush’s first administration Paul O’neil shared that he and Greenspan were going to feed the Bush tax cut sharks their cuts as well ask taking part of the surplus and feed it into upcoming social security and medicare shortfalls. The sharks got their tax cuts and then they went for the wars. Surplus gone.
    And then the Wall Steet banksters had it in the bag with socializing their losses and continuing to privatize their profits. As George Carlin used to always say “the system is rigged”
    Rigged indeed!


  13. JohnH says:

    Much as I like Krugman, he is noticeably loathe to talk about total military spending, which increased 8.2% per year over the last decade. Added expenditures amounted to by $2.4 Trillion with no offsetting revenue increases. So we can conclude that increased military spending since 2000 is directly responsible for 30% of the government’s additional debt.
    And that doesn’t even include “defense related” spending or homeland security.


  14. bob h says:

    If you are compiling a list of elites responsible for this mess, put the five Supreme Court justices who in December, 2000, stopped a vote recount that would have put into the Presidency a man who would have continued the responsible fiscal policies of Clinton.
    The American electorate in 2000 voted for a continuation of the tight ship fiscal policy that had yielded such benefits for the nation; the five justices substituted their naked political preference for that.


  15. questions says:

    Umm, not quite the whole story….
    People voted in Republicans. Republicans did what they do. People voted in some more Republicans. Republicans did what they do. The economy crashed. People voted in some Dems. Dems did some stuff that Dems do. And then people voted in BUNCHES of Republicans who are currently doing what Republicans do.
    What people say they want in polls is not a guide to how they vote. Krugman misses this point, I think.
    Had we not done the Bush thing, we’d have had different policies. So even if we say we don’t really want tax cuts, or wars, or Medicare Part D, or a recession, the fact is that we voted for this and re-voted it, and unvoted it for 2 years, and re-voted all over again.
    Until we stop voting for the party of austerity, we’ll get austerity.
    The Republicans are pretty much doing what they do. And they have something of a regional lock on the south for reasons that have little to do with the budget perhaps (though who really knows).
    The Senate has a rural bias. So we rural preferences on services out of one chamber. The House worries about re-election and they are doing what they think will get them re-elected.
    So Krugman is incomplete on this one.


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