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August 15, 2014

There are good deficits and bad deficits. It depends upon what we are going to spend the borrowed funds for. Thus, Roosevelt’s deficits run up during the Great Depression that put millions back to work with a paycheck in hand were good deficits, whereas Bush II’s deficits run up to fund an additional tax break for the rich was a bad deficit.
Roosevelt’s deficit financing not only put millions of people back to work but also enabled them to bring some demand back into the marketplace, thus infusing businesses with profits and a means of staying in business during this historic downturn of our economy (brought on, as usual, by Wall Street’s unregulated greed during the “Roaring Twenties.”) The public’s capital account was also enhanced via deficit financing that funded the building and rebuilding of the nation’s infrastructure, including many buildings at my alma mater). We got something for our money in many different ways, like wages, demand in the marketplace to help business, and long term infrastructure improvements, as well as a sense among the newly employed that the worst was over. The money Bush gave away to people and institutions who didn’t need it wound up in Swiss banks or Chinese factories, did not build or rebuild the nation’s infrastructure, and did not do anything for aggregate demand. It just made rich people richer; the nation gained nothing other than billions of dollars in additional deficits, thanks to Bush and his “trickle down” junk economics. We could not then or now afford such gifts for nothing in return.
The point to be made here is that the term “deficit” is neutral and that one cannot automatically say that it is good or bad. It depends. There is nothing inherently wrong with borrowing money for present projects to be paid for from future income. Large corporations with millions in the bank nevertheless borrow money routinely (the interest is deductible) and leave their troves intact. Individuals enter into mortgages for housing and borrow money to finance cars all the time. They need a place to live and a car to drive, promise to pay for both from future income, and generally do so.
Our government similarly has vital programs to finance for the good of all. Investments in education, roads and bridges, public health, research and development etc. are examples of some of the programs as vital for financing by the government as homes and cars are for individuals, and if for some reason (including the machinations of the rich to remain relatively tax- and regulation-free) we don’t have the money to perform vital or even necessary public services, then (good) deficits are called for. Not to finance such public investments is the equivalent of a homeowner’s move to under the bridge and riding the bus because he or she doesn’t have the money at the moment for a house or car.
The austerity hounds, of course, say we can’t afford it, that we must live within our means etc. By such a standard, people who borrow money for homes and cars are not living within their means and should retreat to the bridge and bus stops and wait until they have the money for housing and cars. These “hounds” who counsel fiscal restraint are the same Wall Street and corporate people who routinely leverage (borrow) funds by the trillion for investments in Greek bonds, credit derivatives and all sorts of deals on a global level at stratospheric leverage ratios. It appears that the rules these crapshooters employ are not to be made available to others in need of capital (for much worthier purposes, I might add). As will be seen, this advice is only for government, not Wall Street and its consumer prey.
These banks and other corporate interests, especially credit card divisions of banks who charge (formerly) usurious interest rates encourage lending for mortgages, cars and short term credit (credit cards) to the hoi polloi because that, plus their investment banking helps pad their bottom lines. It is essential, then, per these confused capitalists, that the consuming public borrow against tomorrow’s income but a no-no for the government to borrow to keep the consuming public in a job or anything else for the common good except for the military, which must be well-funded (to protect the austerity mongrels’ international properties, patents and similar interests, and, of course, to keep the military contractors’ budgets overflowing and that sector’s profits in first place where they are currently – even ahead of Big Oil). We must fund military profiteering. National security, you know. . .
Part II will take a brief look at the modern history of deficits, including one of the few mistakes Roosevelt made while very successfully employing Keynesian principles in bringing this country out of the Great Depression. He is my all-time favorite president, but great as he was, he did make a mistake following the 1936 election in backing off deficit financing at the insistence of Republicans, and the result was a mini-recession of 1937-1938 within the Depression. I will discuss that mistake in caving to Republicans who pretended to be worried about deficits when he should have pursued the Keynesian tactics that had brought the nation to the brink of recovery, recognizing that Republicans were only really worried that his tactics were working and politically popular; that it was about politics and not about “deficits,” which were mere cover, as today. I will also touch on the role of WW II in finally bringing us out of the Great Depression (if it in fact did). Stay tuned. GERALD E


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