Trump is about to repeat a big time Reagan blunder

The Washington Post reports that Trump’s economic team will propose a budget that increases defence spending, while cutting smaller programs to make up for it.

Treasury Secretary Steve Mnuchin has also said the administration will not cut entitlements.

We’ve seen this play before, and it ends badly.

Cutting federal programs outside of big entitlements like Social Security and Medicare isn’t enough to offset that big boost in defence spending, and we know that because it’s a repeat of a mistake President Ronald Reagan’s economic team made back in the early 80s while it was trying to cut spending.

Instead of touching “sacred cows” like Social Security, Reagan’s team tried to make up for tax cuts and increased defence spending by making cuts to smaller government programs and agencies. It didn’t work. It just increased the deficit.

The whole story of this blunder was told to The Atlantic by David Stockman, Reagan’s budget director at the time. If you want a long look into the mess and machinations of the budget process, you should definitely read it.

The basic truth that Stockman tells is that you can’t actually make a dent in the national budget unless you take on really important, difficult issues in defence spending and entitlements, and in DC the appetite to touch them has never been great.

“None of us really understands what’s going on with all these numbers,” he wrote.

To get the numbers he wanted, Stockman and his team had to get new computer programs and economic models that generated more generous projections than the pre-existing standard models. But eventually reality caught up with them.

From the Atlantic:

“‘Once you set aside defence and Social Security, the Medicare complex, and a few other sacred cows of minor dimension, like the VA and the FBI, you have less than $US200 billion worth of discretionary room — only $US144 billion after you cut all the easy discretionary programs this year.

“In short, the fundamental arithmetic of the federal budget, which Stockman and others had brushed aside in the heady days of January, was now back to haunt them. If the new administration would not cut defence or Social Security or major ‘safety-net’ programs that Reagan had put off limits, then it must savage the smaller slice remaining. Otherwise, balancing the budget in 1984 became an empty promise. The political pain of taking virtually all of the budget savings from government grants and operations would be too great, Stockman believed; Congress would never stand for it. Therefore, he had to begin educating ‘the West Wing guys’ on the necessity for major revisions in their basic plan. He was surprisingly optimistic. ‘They are now understanding all those things,’ Stockman said. ‘A month ago, they didn’t. They really thought you could find $US144 billion worth of waste, fraud, and abuse. So at least I’ve made a lot of headway internally.'”

Then, like now, the ideologues weren’t listening. Eventually Stockman had to suggest certain cuts to Social Security in order to make the arithmetic work, and Reagan disavowed that budget when it became clear public opinion was firmly against cutting Social Security. At the same time, Reagan insisted on steep tax cuts.

They wanted the world to fit their worldview and not the other way around.

“Whenever there are great strains or changes in the economic system,” Stockman said, “it tends to generate crackpot theories, which then find their way into the legislative channels.”

And that’s when things get really messy.

This is an opinion column. The thoughts expressed are those of the author.

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