"I don't worry about the deficit. It is big enough to take care of itself."
Ronald Reagan March 24, 1984
Government deficits peaked in 2009 at $1.4 trillion. Now they are declining. The Congressional Budget Office projects the deficit for fiscal 2013 will be $845 billion -- a decline of almost 40 percent from 2009! Should the president be credited for this positive development as he was blamed for earlier deficits?
Since political parties opportunistically crisscross, identifying four positions facilitates understanding the shifts:
A. The U.S. economy can not live with big deficits forever; ultimately deficits will destroy the U.S. economy (a traditional conservative view).
B. The U.S. economy often can not prosper without big deficits, particularly in recessions and depressions and other emergencies (a liberal position).
C. Both A and B (a Marxian position).
D. "Reagan proved that deficits don't matter" (a neo-conservative view).
The traditional conservative hatred of debt (accumulated deficits) was common at the beginning of this Republic. Thomas Jefferson, who distrusted financiers, abhorred government debt. This conservative position often simplistically likens government budgets to family budgets; just as a family must live within its means so must governments.
This was so accepted that in 1953, just after Republicans won the presidency and Congress in 1952, all income over $400,000 was taxed at 92 percent to help reduce the government debt. The top tax rate stayed over 90 percent until 1964, when the liberal Keynesian advisors of the Democratic Kennedy-Johnson administration helped drop the rate to 70 percent. Conservatives of the 1950s did not seek tax cuts. Conservatives, maintaining the positions they had held in the 1930s, opposed legislation which might contribute to inflation, as the Kennedy- Johnson tax cut did.
Ironically these 90 percent-plus tax rates coincided with the McCarthy Era hysteria when even a hint of sympathy for Marxian or socialist ideas might end a career. The FBI monitored 628 "communist front" or "communist infiltrated" organizations and the Supreme Court curtailed First Amendment Rights so that socialistic ideas would not gain adherents. Yet those staunch defenders of private enterprise scarcely thought that tax rates over 90 percent were socialistic. It says volumes about the devolution of political discourse that when President Obama proposes top tax rates be less than one half of what prevailed in that conservative era, he is labeled a "socialist."
The liberal position was developed in the 1930s, largely by John Maynard Keynes, to improve the Great Depression economy. In a nutshell the theory holds that in a downturn when the private sector can not create enough demand to employ the workforce, government deficits can help bolster demand and thereby increase employment. World War II demonstrably proved Keynes proposition; aggregate demand was gargantuan because of unprecedented government deficits and then unemployment, which had been a critical problem for a decade, disappeared. Thereafter Keynes ideas became the basis of standard macroeconomic textbooks. Although Keynes advised governments to only deficit spend when the economy was down, in an economy prone to chronic sluggishness there was chronic use of deficits to stimulate the economy. Thus Keynesianism, born in an emergency, has persisted because emergencies have persisted.
Marxists see that traditional conservative proposals to shrink government spending will shrink income, since 20 percent of U.S. income comes from government spending. This is a recipe for a recession. Yet Marxists maintain that the liberal remedies to prop up capitalism can not be sustained indefinitely, since each year there must be increased levels of debt to service past borrowing and to stimulate new expenditures.
Neo-conservatism influenced the Reagan Administration (1981-1989) immensely. Its godfather, Irving Kristol, advocated positions guaranteed to be politically popular: don't cut spending and never raise taxes and don't worry about deficits because they will automatically vanish. Reagan's Budget Director, David Stockman, said Kristol " invented the most fabulous free lunch fiscal theory ever proposed." The free lunch theory served Republicans well in the 1984 election. The Democratic candidate Mondale, knowing it would cost him votes, proposed tax increases to reduce deficits which had almost quadrupled under Reagan. Reagan said we did not have to raise taxes; government could spend 24 percent of the GDP while only collecting in taxes 19 percent of GDP. This allowed Reagan to almost win a popular landslide, confirming the appeal of "the free lunch theory".
The W. Bush administration (2001-2009) revived Reagan's neo-conservative ideology: it launched the most expensive invasions in history without any provision to pay for them. When Republicans won the 2002 midterm elections, they felt tax cuts for the wealthy was their entitlement. But Republican indifference to big deficits suddenly came to an abrupt end January 20, 2009, when President Obama was inaugurated. Henceforth opportunistic Republicans were obsessed with deficits. Republicans leave the false impression that they have an unbroken record of opposing big deficits. Yet the historical record suggests that if we had a Republican president, the Republicans in Congress would be very willing to accept record breaking deficits, as they did under Reagan and both Bushes.
Jones lives in West Haven.