Cohen Contracts Krugmanitis

Richard Cohen insists President Bush follow the fiscal restraint of Lyndon B. Johnson, of all presidents, and raise taxes to pay for the Iraq War. He accuses Bush of irresponsibly throwing away huge tax surpluses and demands a choice between guns and butter. Cohen usually has lots of unkind things to say and his column today is no exception:

For Bush, facts are neither hard nor inescapable. He believes in "magical math"... Bush...came into office -- as he did life itself -- with a huge surplus. He spent it...

But look past the snide insults and there's not much substance to Cohen's charges. He spills a well of ink comparing Iraq and Vietnam (again), but conveniently fails to mention any hard numbers beyond counting the war-dead in Iraq--which he anticipatorily rounds up from 1,900 to "almost 2,000." Here are the hard numbers: Vietnam cost the United States a total of $111 billion nominal dollars from 1964-72. That works out to 1.34% of the nation's GDP for those eight years. Iraq will cost about $250 billion even if we maintain present spending rates well into 2006. That's .72% of GDP over just 3 years. The direct economic burden of Vietnam was therefore about five times that of Iraq. Then you have the indirect costs. The Vietnam War shrank America's productive workforce by 8.7 million for at least two years. The 58,000 war-dead were permanently removed from the labor force. They never built businesses, paid taxes, invented new products, etc. (They certainly did make an essential contribution to America's general security and prosperity, but that's a hard number to quantify economically.) These indirect costs of the Vietnam War are easily 50 times that of Iraq. (See here for the Vietnam cost breakdown and here for GDP numbers.) The "huge surplus" for which Cohen pines resulted from an unusual convergence of three elements: Helpful demographic trends which swelled Social Security receipts; surging capital investment which reduced unemployment and spiked income tax revenues; and President Clinton's overwhelming fondness for butter. From 1992 to 2000, surplus Social Security receipts doubled from .8 to 1.6% of GDP. From 1997 to 2000, individual income tax receipts jumped from 9.0 to 10.3% of GDP. And from 1992 to 2000, defense expenditures were slashed from 4.8 to 3.0% of GDP. These three factors combined for a surplus of .8 to 2.4% of GDP from 1998 to 2000. Remove them and the $236 billion surplus in 2000 turns into a $150 billion deficit. Remove the Social Security surplus altogether as you would if federal budgeting occurred outside Wonderland and that's a $225 billion deficit. (See here for a comprehensive overview of federal budget numbers.) Politicians of both parties prove over and over that huge deficits are the only check to their spending. Since 1962 the budget deficit has averaged 2.7% of GDP. That's the real deficit, not the Wonderland deficit which papers over congressional plunder of the federal 401k in an accounting fiction that dwarfs Enron's by several orders of magnitude. During the Bush presidency the real budget deficit has averaged 3.3% of GDP--not good, but no worse than normal considering the economic and security challenges faced in his term. Given political realties, it seems our choice is really between the European model of high taxes, high unemployment, tepid growth, and moderate deficits; and the American model of low taxes, low unemployment, rapid growth, and high deficits. That doesn't seem like a tough choice to me. UPDATE: This piece applies to today's E.J. Dijonnaise column so I'll link it in as well.