Making The Unpopular Fiscal Decisions

By Scott Benjamin

With a projected deficit of $4.4 billion for the two-year budget cycle that starts next July and a pension system that is only 29 percent funded, perhaps Connecticut’s gubernatorial candidates and other hopefuls seeking state office this fall could learn lessons from five recent presidents who made unpopular economic decisions that yielded favorable results.

Washington Post economics columnist Robert Samuelson has stated that former Republican President Ronald Reagan’s greatest contribution to the national economy was not the 25-percent across-the-board tax cut that he signed in 1981 – his first year in office – but his decision to provide political support to Federal Reserve Board Chairman Paul Volcker to allow interest rates to surge to break a cycle of inflation that had been the prime cause of four recessions between 1969 and 1982.

George H.W. Bush biographer Jon Meacham wrote in 2015 that the former Republican president made a bold decision in 1990 to break his 1988 GOP convention pledge and raise taxes. That was done with an agreement from Congress that it would enact the Pay As You Go budget controls in which new spending has to be offset by higher taxes or by spending reductions in other budget line items.

The first economic report following H.W. Bush’s loss in the 1992 election reported that the country had gone from the throes of a mild recession when H.W. Bush signed the tax increase to the point that it was now in economic recovery. Those actions were the start of the longest economic expansion in the 242-year history of the United States.

Famed journalist Bob Woodward wrote in his 1994 book, “The Agenda,” that former Democratic President Bill Clinton got a tax increase approved in 1993 without any Republican votes – and with the reluctant support of former Nebraska Senator Bob Kerrey, whose vote in effect got it through the upper body.

Woodward stated that Clinton took that step at a time when some members of his White House staff complained they were following the conservative balance-the-budget policies of former Republican President Dwight Eisenhower.

Eventually, after negotiations on deficit reduction and welfare reform during the middle stages of Clinton’s eight-year presidency with Republican House Speaker Newt Gingrich and Republican Budget Committee Chairman John Kasich, in 1998 Clinton had the first federal budget surplus in 29 years. He produced budget surpluses in the following three years, thanks, in part, to the dot.com boom and a peace dividend.

Early last year a C-SPAN poll of dozens of journalists and presidential scholars rated Clinton third out of the 44 presidents on economic management.

Greg Ip wrote earlier this month in The Wall Street Journal that former Republican President George W. Bush was upset over the irresponsible overleveraging from some of the big banks, which led to the financial crisis of 2008, just months before he left office.

However, in the interest of averting a possible depression, the president followed the advice of Treasury Secretary Henry Paulson and other administration officials and signed the controversial $700 billion Troubled Asset Relief Program to rescue the big banks.

Reports have indicated that the money was paid back ahead of schedule with interest.

Former Democratic President Barack Obama secured support from three Republican senators in early 2009, just weeks after taking office, to avoid a filibuster and get approval for a $787 billion economic stimulus plan.

He also approved an economic rescue for the domestic automakers.

Princeton economist Paul Krugman wrote in 2016 in his New York Times column that 2012 Republican presidential nominee Mitt Romney said that if he was elected he could get the unemployment rate, which was at 7.7 percent in the fall 2012, down to 6 percent by January 2017.

Obama had it below 5 percent in early 2016, a rate lower than it ever was under Reagan.

The 2017 C-SPAN poll rated Obama eighth out of the 44 presidents in economic management.

Obama said during his first term that he would rather be a good one-term president than a bad two-term president.

Maybe, regardless of the political consequences, the 89^th governor of Connecticut should tackle structural fiscal obstacles that are crowding out spending for other valued line items.

Making the unpopular decisions can produce valuable long-term results.