Stupid Budget Tricks

How not to discredit the Clinton surplus.

“The Democrats are trying to spark nostalgia for the Clinton era of supposed fiscal discipline,” quoth the lead editorial in the Aug. 9 Wall Street Journal. “But remember the latter was achieved largely by ____________.” I felt sure that sentence would end, “raising taxes” and segue into a whine about the bad old days when tax increases were considered a legitimate tool for balancing the federal budget. Instead, the sentence ended with the words “cutting military spending,” which is the more daring argument to make because it isn’t true.

“As the table nearby illustrates,” the Journal editorial elaborates, “Bill Clinton and a GOP Congress balanced the budget by withdrawing a ‘peace dividend’ at a time when al Qaeda was declaring war.” Sure enough, the table shows a steep plummet from 1992 through 2000, followed by an even steeper rise starting in 2001 that, as of 2004, still falls short of the 1992 level. But if you look closely, you’ll see that the table doesn’t plot defense spending. It plots “defense spending as a percentage of GDP,” which is short for “gross domestic product,” which is economese for the combined dollar value of all the goods and services produced inside the United States in any given year. (The United States has the largest GDP in the world. Last year, our GDP was $11 trillion.)

In calculating certain categories of government spending, it can be instructive to present the figure as a percentage of GDP. The fact that Medicare spending grew from 0.4 percent of GDP in 1973 to 2.5 percent of GDP in 2003, for instance, worries many people because it shows that the government is underwriting a slice of the economy that is growing relative to the whole. The White House budget office, in projecting a federal budget deficit of $445 billion for 2004, notes that this means the deficit constitutes 3.8 percent of GDP. Although so high a percentage is “unwelcome,” the White House says, that’s “far below the peak deficit in the period of 6.0 percent of GDP, in 1983.” A fair point: The Bush White House is fiscally irresponsible, but not quite as fiscally irresponsible as the Reagan White House was.

As these examples illustrate, presenting government spending as a percentage of GDP is typically done to gauge the danger that government spending will outrun economic growth. This is an especially urgent concern for conservatives, who oppose government growth in principle. But the Journal presented defense spending as a percentage of GDP in order to gauge the danger that defense spending would fail to keep up with economic growth. Let us now pause and ask ourselves how growth in the GDP necessitates growth in defense spending. Does a more prosperous economy increase the risk that we will be attacked by a foreign power or by a terrorist group? Of course not. The Sept. 11 attack, you’ll recall, occurred when the United States economy was in recession. A growing GDP may increase the level of defense spending we can afford, but it has no bearing on the level of defense spending we actually need. Hence, “defense spending as a percentage of GDP” is a worthless statistic—unless you want to argue (as the Journal, plainly, does not) that the Pentagon is bankrupting the country.

If you want to calculate how defense spending really changed under Bill Clinton, the best way is to look at the raw numbers. According to the White House budget office, the federal government spent $298.4 billion on national defense in 1992 and $294.5 billion on national defense in 2000. That represents a fairly modest cut in response to a momentous event—the Cold War’s end. If you factor in inflation (which, conservatives frequently complain in other contexts, confounds the true meaning of the term “budget cut”), it represents a 17 percent reduction in “real” spending. A 17 percent defense cut, after inflation, over the course of eight years, could not and did not balance the federal budget. To say that Clinton balanced the budget “largely” at the expense of national defense is a lie. Clinton balanced the budget through a variety of means. Tax increases helped; Pentagon cuts helped; and a booming economy helped a lot.