Bear with Dan Mitchell for a moment. The Obama administration, which just released its budget proposal today, proposes expanded domestic federal spending (which they call “investments”) while the economy stagnates. Mitchell, in another of his Econ 101 series from the Center for Freedom and Prosperity, argues that successful government policy should at the minimum keep domestic spending increases at a lower rate than overall GDP growth, and if possible shrink it. That may be especially true while entitlement spending explodes, with Baby Boomers flooding into retirement systems and younger wage earners share more of the burden of their benefits.
As Mitchell notes, two Presidents over the last 40 years have managed to do this, Ronald Reagan and Bill Clinton — and Clinton managed to actually shrink the relative share of GDP going to domestic spending:
Of course, Mitchell uses Clinton to make a point that Democrats and Republicans alike could choose to succeed in these policies, but the difference in the case of Clinton was the 1994 midterm election. After Republicans took control of the House and Senate, Clinton had a choice as to whether to go along with Republican attempts to cut domestic spending and get credit for the effort, or to fight them and share blame for the failure. Clinton actually chose to do a little of both, outboxing Newt Gingrich in the 1995 government shutdown but otherwise co-opting the GOP policy of spending cuts, as Mitchell notes.
Barack Obama has that same opportunity. He has a Republican House, but the key difference is that Democrats still control the Senate – at least for now. That allowed Obama to make nothing more than cursory cuts in his latest budget proposal, a pose that Mitchell skewers on his blog post yesterday.