Mitch Daniels, Darling of "Fiscal Conservatives," Was Architect of the US Debt Crisis

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To hear Official Washington tell it, Indiana Gov. Mitch Daniels is the new "serious" Republican presidential contender. He's praised as a "fiscal conservative" who isn't obsessed with the Right's divisive social agenda nor marred by the crazy "birther" conspiracy theories.

Mentioned only in passing is a key fact that -- in a saner world -- would disqualify him from holding any government office: Mitch Daniels was President George W. Bush's original budget director in 2001.

In other words, the "fiscal conservative" Daniels oversaw the federal budget as it was making its precipitous dive from a $236 billion surplus -- then on a trajectory to eliminate the entire federal debt in a decade -- to a $400 billion deficit by the time he left in June 2003.

Plus, because of proposals developed on Daniels's watch -- such as tax cuts favoring the rich and unpaid-for projects, including the invasion of Iraq and a new prescription drug plan -- the fiscal situation of the federal government continued to sink over the ensuing years, plunging to a trillion-dollar-plus annual deficit by the time Bush left office in 2009.

Though Daniels was surely not at fault for all the elements in this budgetary catastrophe, he was a central player in the early stages of the process. A former political operative for Ronald Reagan and an Eli Lilly pharmaceutical executive, Daniels was the salesman who pitched and defended Bush's plans.

Certainly, Mitch Daniels was no David Stockman, President Reagan's first budget director who sounded the alarm two decades earlier when he saw an ocean of red ink looming in the nation's future.

And it wasn't as if Daniels and other figures in the Bush administration weren't warned about the need for continued fiscal discipline.

President Bill Clinton, in his farewell address to the nation on Jan. 18, 2001, noted how his administration had managed to turn what were then record deficits -- left over by Republicans Ronald Reagan and George H.W. Bush -- into record surpluses.

"We've been able to pay down $600 billion of our national debt -- on track to be debt-free by the end of the decade for the first time since 1835," Clinton said, adding that a debt-free America would enjoy many economic benefits including lower interest rates and the capacity to address "big challenges," such as the retirement costs from the "baby-boomers."

However, with Daniels at the budget helm, the Bush administration quickly veered off-course and onto the rocks of a worsening debt crisis. Much of the expected surplus was squandered with huge tax cuts, leaving the nation vulnerable to unexpected economic and policy shocks like those that followed the 9/11 attacks.

In the 10 years since Clinton left office, the projected $2 trillion surplus by 2011 gave way to today's $10 trillion debt, what the Washington Post recently called "a $12 trillion detour."

The Post's May 1 story by Lori Montgomery began, "The nation's unnerving descent into debt began a decade ago with a choice, not a crisis. ... Voices of caution were swept aside in the rush to take advantage of the apparent bounty. Political leaders chose to cut taxes, jack up spending and, for the first time in U.S. history, wage two wars solely with borrowed funds."

Iraq Miscalculation

Daniels, who had very little experience in budgeting and was most adept at policy promotion, directly contributed to one of those budget blunders, the gross underestimation of the cost of the Iraq War.

In 2002, Daniels famously low-balled the war's cost at $50 billion to $60 billion and joined in the repudiation of Bush's economic adviser Lawrence Lindsey, who had ventured an estimate as high as $200 billion. Daniels called Lindsey's price tag "very, very high."