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Presidents’ Wartime Budgets

September 16, 2003 at 12:00 AM EST
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GWEN IFILL: President Bush’s request for $87 billion in new spending for Iraq and Afghanistan could push the federal budget deficit to over $550 billion next year.

But the cost may be felt in more than just dollars. Will retirees earn less? Will taxes go up? Will the government build more schools in Baghdad and fewer at home? President Bush will not be the first U.S. leader to have been faced with such choices. Wartime presidents have always faced difficult budget choices. But can they have it all?

For that, we take a longer look tonight, with presidential historian Michael Beschloss; author and journalist Haynes Johnson; Annelise Anderson, a research fellow from the Hoover Institution, and historian Diane Kunz, the author of “Butter and Guns: America’s Cold War Economic Diplomacy.”

So Michael, I pose the question to you first. Is it possible for them to have it all or is that even what they’re trying to do?

MICHAEL BESCHLOSS: Well, they’ll sure try. I mean, Lyndon Johnson and Ronald Reagan are probably the best recent examples. In LBJ’s case he waged this very expensive war in Vietnam at the same time as he was trying to increase things in social spending, the Great Society, medical care, education, and help to the poor and so on.

He felt that he could do that without raising taxes and that that would not bring inflation. The economists all told him don’t do this because if you increase that kind of spending without a tax increase, you’re going to have run-away inflation which he did by 1968. The result was he was finally forced into a war tax of 10 percent surcharge which actually brought the last balanced budget in 1969 for many years until the 1990s. Why did he not do the tax increase?

He did it… he avoided it because he felt that you increase taxes, people ask why, and they will say, well, if a tax increase is required for things like Medicare and especially the War in Vietnam, I don’t want it. He didn’t want people to turn against his policy. That was to some extent also true of Ronald Reagan.

In the early ’80s, he tried to increase defense spending, balance the budget and also cut taxes; of those things he was able to do two of them obviously not balance the budget, a lot of deficits. The argument that Reagan would make in retrospect would have been, yes, I wasn’t able to balance the budget but it was so important to try to end the Cold War that those deficits, as bad as they were, were necessary.

GWEN IFILL: Diane Kunz you literally wrote the book on the subject of butter and guns, do you see it the same way Michael does, the choices.

DIANE KUNZ: Well, a wartime president has to remember that unlimited money is the sinews of war that’s what Cicero wrote 2000 years ago and that’s what every president in this century who has fought a war has to face. The way presidents have dealt with it is either to cut the butter, hide the guns or find somebody else to pay for the war.

Michael has given us the negative example, how Lyndon Johnson, by hiding the guns hurt the American economy and the American political consensus for decades.

The positive example here is Harry Truman. In 1947, the Cold War begins and he makes the decision with his advisors that we need to have a military side to this, the Truman Doctrine, and an unprecedented financial aid package for Western Europe in the shape of the Marshal Plan.

And what does Truman do? He, together with enlightened Republicans such as Arthur Vandenberg, put together a bipartisan consensus that war… politics stops at the water’s edge. We’re not going to fight about foreign policy. At the same time, he puts together a double barreled education package for the American public.

He scares the hell out of the country. And that was Vandenberg’s phrase. This is a serious matter. And at the same time he educates people to the benefit that the Marshal Plan will have for American taxpayers, American agriculture, American industry.

This is what President Bush needs to do, to follow the Truman example, get the Democrats on board, show that he is willing to compromise on his tax-and-spending packages, and create in the American public this belief in this view that we need to spend the $87 billion now.

GWEN IFILL: Haynes, is it possible for President Johnson or President Reagan or even the current President Bush to be in the position of being willing to scare the hell out of the American public?

HAYNES JOHNSON: Well, they can do that but it doesn’t really work because at the end there’s a collision coming down the road. I mean, you’ve got taxes over here, or tax cuts, you’ve got spending for programs and you’ve got the war increases.

Even Truman, what she just said is correct but in the Korean War — when that began Truman — was criticized very severely for wanting to have guns and butter too at the same time and not paying the price. So politics is marvelous.

They always want to give you the politics of pleasure, not the politics of pain, not bad news. Politicians live for the next election, statesmen for the next generation. At some point there’s a collision between what are the choices of a country to do with the treasure you have to allocate, and war is always more expensive. It costs more, puts more pressure on, as Michael and we both heard here.

GWEN IFILL: But, Annelise Anderson, I guess the question then becomes, is it worth it?

ANNELISE ANDERSON: Well that’s a good question in terms of what the role of the United States is in the world. But if we look historically at the… what we were spending on defense when this president took office in the year 2001, we were spending less than we had been spending since before World War II.

We were down to about 3 percent of the Gross Domestic Product in relation to the economy. That’s half of what Ronald Reagan was spending. It’s a third of what John F. Kennedy and Lyndon Johnson were spending. On the other hand, the social spending has gone up enormously.

So what we’ve done is we’ve cut defense over the years and we’ve put the money into the butter. Our social spending is at 13 percent or so of GDP. It’s four times defense spending over that. It’s higher than it’s ever been. So what are the choices that we want to make? Are the political pressures so great that we can never meet these responsibilities that come upon us in national defense?

We had a great deal after the end of the Cold War. We got an enormous benefit in terms of decline in defense expenditures because we no longer had to counter the Soviet threat and also increased skills with our technology, with the military that made it cheaper. Now we have some challenges. Can we not meet those challenges?

GWEN IFILL: Let me ask you and then others this question, which is: The two big boogiemen of this discussion have been deficits, rising deficits and inflation, potential for inflation. Should they not be considered the bad news that we’ve always treated them as in wartime?

ANNELISE ANDERSON: Well, Reagan… the Reagan era really demonstrated that inflation and deficits are not necessarily related. It depends on what you do with money supply. But there may be other consequences. The problem with giving in to a tax increase and having the guns and the butter is, do the politicians ever arrive at the point where, in fact, they do make the hard choices? And the existence of a deficit keeps pressure on them.

GWEN IFILL: Haynes, you want to respond.

HAYNES JOHNSON: The real thing, leadership is about telling you it’s going to be tough, it’s not going to be easy spelling out the hard news. Churchill and the war, I only have blood, toil, tears and sweat. Roosevelt in those fireside chats during World War II — he never promised — the news was going to get worse before it got better. And leadership in the long run, if you take the country into your own sort of countenance and tell people what you can expect, you might get the support. But we always go through this process, we don’t really have to pay for it now — it’s going to be okay in the future.

GWEN IFILL: It’s hiding the guns?

HAYNES JOHNSON: Exactly. So it’s a free lunch today. Don’t worry about tomorrow; just pass the buck.

GWEN IFILL: Michael.

MICHAEL BESCHLOSS: But we’ve also seen something that’s absolutely fascinating. What Annelise has done is she’s stated what is basically the conservative position on deficits these days. If we were talking in 1950, what we would have heard probably from her or from another conservative would have been a good conservative is for a balanced budget because that’s sound economics.

A liberal would have said let’s have deficits because you can do more for people and it stimulates the economy. What we’ve seen in the last half century is this has turned absolutely upside-down so that conservatives are afraid of balanced budgets because they think it will allow liberals in Congress to turn the faucets….

GWEN IFILL: Isn’t it turned upside-down also, Michael, during wartime? Doesn’t that take a lot of things off the table?

MICHAEL BESCHLOSS: Sure it does. And I think there’s a distinction between a war like that in Vietnam or a war like that in Iraq, which are to some extent optional wars and a war like World War II, where every American after Pearl Harbor realized that it was essential for us Americans to fight Germany.

That allowed Franklin Roosevelt to go to Americans and say I’m going to raise your taxes because we have to pay for this war that is for our very ability to survive against Hitler and the imperial Japanese. With that kind of thing at stake, no one complained about a tax increase. If you’re dealing with something like Vietnam or Iraq, very controversial wars, it’s much harder to get people to accept that without turning against the war.

GWEN IFILL: Diane Kunz, why don’t you weigh in all these shifting definitions that depend on whether we’re at war or not.

DIANE KUNZ: Well, I think this is the task for Bush is that he has to get away from any kind of comparison with Vietnam and Korea, which were both deeply unpopular, and make the case that Iraq was not a war of choice, it was a war of necessity fought because we had been attacked from 1990 onward from the first Iraq war through the various bombings in the United States and abroad culminating in 2001. But if I may make one other point…

GWEN IFILL: Please.

DIANE KUNZ: To me, the problem that we have to face now is the… who is going to pay for this war. So much of our deficit now is funded abroad. It’s funded by central banks in Europe and Asia. One of the questions that President Bush has to face is that if the American taxpayers don’t pay for the war and borrowed money from abroad does pay for the war, at some point the political agendas of the central banks lending us the money are going to determine our foreign policy — not here in Washington but in central banks and capitals around the world.

GWEN IFILL: Haynes.

HAYNES JOHNSON: And the politics of it, of making choices, telling the people there’s guns and butter, yes, but what do you mean for the butter here? Forget the butter — fattening stuff — but how do you pay for schools? How do you pay for education? How do you pay for health care — at what trade-off?

GWEN IFILL: Isn’t wartime spending supposed to stimulate the economy?

HAYNES JOHNSON: It does but you pay a price down the road in increasing deficits and inflation and interest rates. That’s always been… that’s been the process in the past. So you have a real question, how do you make these choices? Politicians don’t like to make those choices.

GWEN IFILL: Annelise Anderson.

ANNELISE ANDERSON: Well, I think they don’t like to make those choices but if you look at what we’re doing right now, we’re spending an enormous amount on health, education, retirement. We also have the state spending on education.

And so what’s really been starved in our federal budget and gets starved in the democratic political process, I think, as we get more and more people who want to get their money from the federal government for their grants or whatever it is, what’s starved is defense. That is what we ought to recognize is that it’s defense that’s starved. And that we’ve been buying the butter just willy-nilly.

GWEN IFILL: Michael.

MICHAEL BESCHLOSS: You know, in a way what presidents do is they gamble with their historical reputation. Johnson in the ’60s gambled that future generations would think that standing in Vietnam was so important that a little inflation was okay. Most historians, most Americans don’t think that.

Reagan in the ’80s was gambling that future generations would say it was so important to spend on defense to try to win the Cold War in our generation that future Americans would say that was something that was good to do –the deficits did not make that much difference. He may be right on that in the end. George Bush in a way is probably making the same calculation now.

GWEN IFILL: What is the lesson that the current president should be learning from the experience of these past presidents?

MICHAEL BESCHLOSS: Well, it would be that in Reagan’s case he was not able to get it all but in Reagan’s case also there’s a chance that he might be justified by history. So if future historians say that the threat in Iraq and Afghanistan and the war on terror in general, if that was so important as to mean that our economy suffered, he might feel that in the end he might be redeemed. But that’s something only time will tell.

GWEN IFILL: Quickly.

HAYNES JOHNSON: What Reagan did was cut taxes but he also raised defense spending and the cutting of the social side didn’t happen. So there you had the rising deficits at that period. That creates a problem down the road.

GWEN IFILL: Diane Kunz, Annelise Anderson, Michael Beschloss, and Haynes Johnson, thank you very much.