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One of the biggest misnomers in the current fiscal stimulus debate concerns the United States' ability to service its budget deficit and national debt (pdf).Provided the fiscal stimulus package is passed, the national debt ceiling will increase to $12.1 trillion from the current $11.3 trillion.
Deficit approaching intolerable levels?
Economic conservatives, market absolutists, and the like argue that the annual budget deficit and national debt are approaching intolerable levels. In truth, what they're arguing against is a needed government intervention and New Deal-type spending required to jump-start the U.S. economy -- even if it means the economy will plunge into a deeper recession without the stimulus. It seems some economic conservatives would rather see the nation's economy suffer, than to violate one their flawed economic theories.
That's why some in the economic conservative camp are harping about the budget deficit, but their argument is philosophically thin. In truth, although a nation should not run a deficit during an expansion, as New York Times columnist Paul Krugman has noted, deficits are necessary during a recession, in order to create demand when few other forces in the economy will.
Further, the national debt remains serviceable, provided the U.S. economy returns to a sustainable growth track, as a result of the likely increasing government revenue that will accompany that recovery. After the recovery is in place, Krugman adds, the federal government can then act to balance its budget -- and pay-down the national debt -- by cutting spending and/or raising taxes.
Why would economic conservatives continue to publicize blatantly false claims like 'an unserviceable budget deficit' and 'the ineffectiveness of government spending'? It's required by their political base -- primarily wealthy and upper-income Americans -- whose lives remain relatively unharmed by the recession: whether the recession is mild or deep, their lives are relatively unscathed. They certainly won't sustain the massive life disruption of people losing their jobs and homes. And if one isn't harmed, what's the need for fiscal stimulus?
Hence, it's for the above interest group reasons, not sound economics, that economic conservatives today continue to attempt to distort -- via a half-truth -- the historical record, in an attempt to invalidate fiscal stimulus as an engine of growth: they argue that World War II, not the policies of FDR, ended the Great Depression. But World War II involved massive government spending and wholesale federal government organization of the U.S. economy. In other worlds, federal government spending for World War II was an amped-up version of the New Deal, proving that, if anything, the mid-1930s portion of the New Deal (when FDR mistakenly tried to balance the budget) was too small.
Yours truly didn't realize that today's economic conservatives favored government controls on production, too, in addition to fiscal stimulus.
Fiscal Policy/Economic Analysis: When you run across an economic conservative, enlighten him/her of the above fact, and this one: after massive federal government spending for World War II (1941-1945), the United States economy emerged as the strongest economy on the face of the earth. Further, in the current context, so long as economic growth resumes, the national debt is serviceable.
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Reader Comments (Page 1 of 1)
1-26-2009 @ 10:32PM
dray said...
If the "conseratives" truely cared about the deficate, they would have spoke up 7 years and 1.1 TRILLION oops ago. Even f the US spende 825 billion if it is compared with the rest of the world it will balance out and not overburden our economy
1-26-2009 @ 10:50PM
ssj22 said...
Once again, I find myself wondering why I bother reading your increasingly hysterical and illogical ramblings. I'm not sure what purpose the rant against "upper income" Americans was supposed to accomplish other than to reveal some class envy on your part..
It isn't World War Two that we should be interested in when considering the end of the Depression, it is the "conservative" economic policies of the Truman Administration that were in effect in the years after the government went from running trillion dollar deficits (in today's money) to running a surplus and unleashing millions of readily employable workers into the marketplace that produced the desired effect.
It is also hard to see how the current "stimulus" - (aimed at rewarding the forty percent of Americans who don't pay taxes for their solid support of the Democratic party) composed of "family planning" and Mob Museums has to do with training millions of highly skilled workers and retooling and modernizing America's industrial base like we did in WW2.
Finally, I would just like to say that I look forward to the day that I no longer have to hear Mr. Krugman's nonsense or read it in the now defunct and bankrupt (in every sense) New York Times...
1-27-2009 @ 2:09AM
John Dupuis said...
If you do the research. FDR's own treasury people reported at the time, and I quote, "...we have spent and spent for seven (7) years and the more we spend the worse it gets..."
World War II ended the great depression not government spending policies. This is a ploy used by socialist like "Klugger" and "Lazzerous" to usher in socialist ideas. We all should remind ourselves that, our politicians to fuel their own elections bids, provided pork spending at the expense of Social Security. Most of our representitives in Congress are thieves at heart! Barney Frank and Chris Dodd, followed by Charlie Wrangle and Chuck Schumer are this most guilty of all. Term limits would probably take care of this problem.
1-27-2009 @ 2:15AM
lincolncar1 said...
This is the dumbest article I've seen to date. How does an economy grow in a Depression? 13.7% Unemployment. 30% unemployment by the end of the year. Do you think we are stupid?
1-30-2009 @ 12:35PM
gigapal said...
It's not the massive deficit spending alone that revive the U.S. economy in 1941-1945m it's the massive war retooling & spending as well as being the only industrialized nation that's not damaged by the war. This time it's different, Europe, China, and other countries are intact and in competition with U.S. We've practically hollowed out our manufacturing industries, and replaced them with credit industry - which is now our largest industry. Our biggest industry is borrowing and spending. How's that going to rebuild our economy.
1-27-2009 @ 5:20AM
al coholic said...
The difference between now and the post WWll environment is that the soldiers and their families who turned into consumers had money to spend. That government gave money to soldiers via the GI Bill and other means to stimulate the economy from the bottom up.
Our current solution has been to fatten the wallets of the crooks who got us into this mess. Instead of loaning the money we gave them they are hoarding it and using it to acquire other entities.