In Good Times, Prepare For Bad
The United States of America is in trouble. The mammoth deficit. The gargantuan debt. The moribund economy and appalling unemployment. It’s hard times in the land of plenty – as anyone could see with just a glance at the thin, exhausted face of President Barack Obama as he addressed a joint session of Congress last week.
But how did it come to this? That’s the $64,000 question, as Americans said in a more optimistic time. It’s also the question we must answer if we are to learn from our neighbours’ brutal experience.
So let me take you back a little more than a decade.
It’s the evening of Oct. 3, 2000. The presidential election is a month away and Texas governor George W. Bush steps onto a stage in Boston to debate vice-president Al Gore.
“People need to know that over the next 10 years there’s going to be $25 trillion in revenue that comes into our treasury,” Bush notes. “And we can anticipate spending $21 trillion.” That will leave a $4 trillion surplus.
Hard as it is to recall now, the U.S. budget had posted a string of huge, historically unprecedented surpluses. Forecasts called for more of the same far into the future. Of course the economy would have downturns some day, and that might reduce revenues somewhat, but policy-makers were confident they had figured out how to tame the business cycle. The boom would never be followed by bust.
The only cloud on the horizon was population aging. Way out in the future – after 2010 – baby boomers would start to retire, putting steadily increasing pressure on Medicare and Social Security.
But that was more than a decade away. In 2000, the economy was roaring, unemployment was at rock bottom, social ills like crime were shrinking, and America’s influence abroad was greater than it had ever been. So there was really only one question in the election: What should the next president do with all this good fortune?
“I believe it’s important to resist the temptation to squander our surplus,” said Al Gore. “I will pay down the national debt. I will put Medicare and Social Security in a locked box and protect them. And I will cut taxes for middle-class families.” But Gore made it clear his top priority was tackling the debt. “For every dollar that I propose in spending on things like education and health care, I will put another dollar into middle-class tax cuts. And for every dollar that I spend in those two categories, I’ll put two dollars toward paying down national debt. I think it’s very important to keep the debt going down and completely eliminate it.”
George W. Bush said the very premise of Gore’s plan was wrong. “My opponent thinks the government – the surplus is the government’s money. That’s not what I think. I think it’s the hard-working people in America’s money and I want to share some of that money with you. So you’ve got more money to build and save and dream for your families. It’s a difference of opinion. It’s the difference between government making decisions for you and you getting more of your money to make decisions for yourself.”
Bush also promised new spending and balanced budgets but his top priority couldn’t have been clearer. A government running a surplus is taxing too much, he said. It must cut taxes immediately.
At the time, that argument was routinely made by American conservatives. But then Bush took office and passed his first tax cut.
The economy tipped into recession. Terrorists struck on 9/11. And the last surplus died like the last dodo. Conservatives then found different rationales to support further tax cuts.
In Canada, back in the early years of the last decade, the Chrétien government handled its surpluses much as Al Gore proposed, emphasizing debt repayment. But the argument Bush made in favour of tax cuts was often repeated by Canadian conservatives – until rapid spending increases under the Martin and Harper governments, Conservative tax cuts, and the recession of 2009 did to the surplus what shotguns did to the passenger pigeon.
As always, the critical factor in both these storylines is our collective inability to foresee what the future has in store for us. Bush didn’t expect to get walloped with a recession and a catastrophic terrorist attack. He didn’t think Iraq would turn into a fiasco. He didn’t know New Orleans would drown. And he certainly didn’t foresee the collapse of late 2008. Almost no one did.
Same for Stephen Harper. In the election of 2008 he said he would never run a deficit. I’m sure he was sincere. He just didn’t know what was coming.
If there is one lesson we must learn from 9/11 and the decade that followed it is that the future will not unfold as expected, which is why the choices politicians and voters make when times are good are every bit as important as when things go to hell. Perhaps more so.
That’s something few of us understood in 2000. I certainly didn’t.
While chatting with the head of the American Civil Liberties Union in October, 2000, I asked him what he thought of the presidential election.
He shrugged. And I nodded. Gore or Bush? Debt repayment or tax cuts? It just didn’t seem important. The campaign “was never about anything,” sniffed New York Times columnist Maureen Dowd in December, 2000. “Lockbox, prescription drugs, blah, blah.”
In fact, the campaign of 2000 was about an urgent question: Would Americans use their good fortune to prepare for future downturns, shocks, and disasters?
That’s what Gore’s plan would have done. His “lockbox” would prepare for the predictable challenge of population aging, while paying down debt would ensure that the United States would always have the fiscal strength to respond to unpredictable emergencies.
But Gore did not become president. And the United States did not use the good times to prepare for the bad.
This lesson isn’t needed now, in this era of deficits and stagnation. But, with a little luck, this time will pass. One day we may once again wonder what to do with our surpluses and abundant good fortune.
I hope we remember.