Obama Will Spend Less--Way Less!--Than Bush

The economic record of recent presidents has blurred a major ideological distinction between the two political parties. After President Bush's "big-government conservative" policies expanded the federal budget to unprecedented proportions, President Obama will likely continue the oxymoron of the "small-government liberal" by pursuing deficit-reduction.

Senior Fellow
Kevin A. Hassett
We are living in the Oxymoronic Age.

It began back in 1992, when President Clinton governed as a "small-government liberal." When Clinton took office, he inherited a government that was about 22% of our economy, when he left office, it was all the way down to 18.5%.

Roosevelt is glorified by the left for saving America with his "New Deal." But Bush makes Roosevelt look like a piker.

The Oxymoronic Age continued eight years ago, when President Bush rose to power by igniting his base and enraging his enemies. After his victory, Democrats characterized his every move as radically conservative, but of course, far too few of his actions matched that description.

Bush ran as a compassionate conservative, which is not an oxymoron, but governed as a "big-government conservative," which is.

When Bush took office, federal government outlays were, according to the Congressional Budget Office, 18.4% of gross domestic product. As President Obama takes office, he is taking over a government that is radically different from the one Bush inherited but not in the direction that Bush detractors feared.

According to the latest CBO projection, government will take up a whopping 24.9% of GDP. But that CBO projecting does not include the stimulus bill and a few other tidbits that have been supported by Bush. Adding those in, government will take up a whopping 28% or 29% of GDP in 2009. There are only three years in our history--1943, 1944 and 1945--with larger governments.

So during President Bush's two terms, up to and including the last budget year he could affect, government's take of our output increased by about 10 percentage points.

President Roosevelt is glorified by the left for saving America with his "New Deal." But Bush makes Roosevelt look like a piker. In 1930, government swallowed up a minuscule 3.4% of GDP. Roosevelt's "massive" government expansion lifted that to 10.7% in 1934, a 7.3 percentage-point increase.

That's right, we are in the middle of an increase in the role of government that is about 50% larger, as a share of GDP, then the New Deal.

That's big-government conservatism.

The next man up is Barack Obama, and he will, of necessity, be another small-government liberal.

Our new president faces a maddening array of difficult choices and has promised on the campaign all sorts of big-government programs. But the fact is that government spending as a share of GDP is practically guaranteed to go down on his watch.

While President Obama may have the inclination to expand government, it seems most likely that his presidency, like Clinton's, will be marked by attempts to find clever ways to shrink the deficit. The fact that the Obama economic team has many of the Clinton players makes deficit reduction almost a sure thing.

According to the CBO budget outlook, it will drop all the way to about 21% of GDP by 2019. But let's say that Obama is not as tight-fisted as the CBO projects and government spending only drops to about 23% of GDP, a 5% drop. If Obama accomplishes that, then government spending will have dropped relative to GDP more on his watch then it ever has in U.S. peacetime history.

Second place in that context would belong to Clinton.

These differences have, if the academic literature is to be believed, an enormous economic impact. Harvard economist Robert Barro pioneered a literature that explores the conditions that are positively correlated with economic growth. One of the most robust results in that literature is that smaller government leads to higher long-term growth.

If the economy has been better when Democrats control our government, this literature suggests that there is a simple explanation for the regularity: Democrats gave us smaller governments.

Over time, and through the hate-filled chatter of the blogs and the talk shows, we have all acquired the sense that our two political parties have fundamentally different views of government. Democrats favor big-government programs that solve the world's problems, and Republicans prefer smaller and leaner government that stays out of the way of the private sector.

But the record says the opposite.

Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.

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