Monday, February 19, 2018

THE PRAIRIE EDITOR: The Deficiency Of Deficits

[This article first appeared in INTELLECTUAL TAKEOUT -
see link at right]

The issue of ongoing and growing governmental deficits
has arisen once again, as it does from time to time in U.S
politics, but those who are raising the issue most
critically now are liberal Democrats, many of whom
have spent most of their time until this moment
advocating programs and public spending which made
federal debt greater and greater.

John Maynard Keynes was a British economist in
the last century who, after the worldwide economic
depression began in the 1930s, advocated deficit policy
and government intervention as good and effective tools
to meet that crisis. President Franklin Roosevelt and his
administration adopted Lord Keynes’ theories as a
basis for their New Deal programs and strategies for
economic recovery. Keynesian economics subsequently
has been given credit for “saving” the U.S. economy ---
although some commentators now argue that World
War II and the natural business cycle might deserve more

Lord Keynes, however, has partly had a bad rap as an
advocate for permanent deficits. In fact, he had opposed
them in principle. Created an hereditary baron late in life
(he sat in the House of Lords as a member of the Liberal
Party), he first made his mark before World War I. At the
notorious Versailles Peace Conference after the war, he
represented Great Britain, but was shut out of the
decision-making because he was one of the few economists
and statesmen who strongly opposed retaliatory reparation
demands on Germany --- prophesying they would create
economic and political instability in the defeated nation.
Keynes actually advocated high inflation in Germany in the
1920’s as a way to offset the punitive cost of the reparations.
(Unfortunately, this inflation had unintended consequences.)
When the worldwide depression occurred in the 1930s, he
advocated government intervention by deficit spending to
boost employment and revive the economy. Keynes
economic strategies were thus opportunistic and primarily

American economist Milton Friedman argued for lower
taxes to promote growth, and attacked the notion that
permanent deficits and entitlement spending were healthy
and helpful strategies for a free market economy. His and
others’ ideas, including cutting taxes, were adopted by
President Ronald Reagan in the 1980s to end the earlier
“stagflation” (and later high inflation), high interest rates,
and high unemployment that dogged President Jimmy
Carter and his administration in the late 1970s.

While most liberal politicians continued to advocate and
promote Keynesian ideas of high taxes, deficits and lots
of government spending programs, their conservative
opponents often have only insisted on lowering taxes while
compromising with liberals on government programs.

Recent Republican presidents have cut taxes, but often
failed to rein in government spending thus ultimately
dooming economic recoveries. “Supply-side” earned a
reputation  among liberals as a “trickle-down” theory and
a failure, but when properly applied, it works.

President Trump could fall into the same economic trap
as his GOP predecessors as he combines the Republican
much-needed tax reform with substantial new
government spending not only on new infrastructure (his
idea) but with liberal entitlement spending as part of his
dealing with the Democrats. (The problem, to be fair, is
that rebuilding public infrastructure is overdue, and
entitlements are almost politically impossible to eliminate
or even reduce.)

Former Speaker of the House Newt Gingrich argues that a
balanced budget is not only a good thing, but is possible.
Republicans, when he was the U.S. house leader, initiated
the last balanced budgets in the 1990s. A centrist
Democratic president, Bill Clinton, embraced the idea,
and the two sides compromised and made it a bipartisan
effort. (Many economists now point out, however, that this
brief period of budget surpluses was inherently
compromised by the Clinton-inspired incipient Fannie
Mae and Freddie Mac bubbles that later were disastrous
to the U.S. economy.)

Is there a Democrat leader today willing to  make a true
balanced budget possible? Is the Republican leadership
willing to reclaim their initiative on this issue?

Some Democrats today are acting as short-sided as the
politicians did at Versailles a hundred years ago, arguing
for more confiscatory taxation against “the rich” --- as
well as for more and more entitlement programs. This
strategy, applied almost everywhere in post-World War II
Europe had some short-term success in that continent’s
recovery from devastation, but its long-term efficacy was
a failure, even in the much-touted Scandinavian nations
where public policies are now increasingly adopting more
free market solutions.

While “purist economic” conservative congressional
figures and groups have often recently stood in the way
of needed legislation --- and were persuaded finally to
support the key tax reform bill --- their critique of
subsequent “aggravations” of new deficit spending
should not be summarily dismissed or ignored.

Copyright (c) 2018 by Barry Casselman. All rights reserved.

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