spring of 1981, conservative Republicans in the House of Representatives
cried. They cried because, in the first flush of the Reagan
Revolution that was supposed to bring drastic cuts in taxes
and government spending, as well as a balanced budget, they
were being asked by the White House and their own leadership
to vote for an increase in the statutory limit on the federal
public debt, which was then scraping the legal ceiling of one
trillion dollars. They cried because all of their lives they
had voted against an increase in public debt, and now they were
being asked, by their own party and their own movement, to violate
their lifelong principles. The White House and its leadership
assured them that this breach in principle would be their last:
that it was necessary for one last increase in the debt limit
to give President Reagan a chance to bring about a balanced
budget and to begin to reduce the debt. Many of these Republicans
tearfully announced that they were taking this fateful step
because they deeply trusted their President, who would not let
last words. In a sense, the Reagan handlers were right: there
were no more tears, no more complaints, because the principles
themselves were quickly forgotten, swept into the dustbin of
history. Deficits and the public debt have piled up mountainously
since then, and few people care, least of all conservative Republicans.
Every few years, the legal limit is raised automatically. By
the end of the Reagan reign the federal debt was $2.6 trillion;
now it is $3.5 trillion and rising rapidly [ed. Note: $6.9 trillion,
Jan. 13, 2004]. And this is the rosy side of the picture, because
if you add in "off-budget" loan guarantees and contingencies,
the grand total federal debt is $20 trillion.
the Reagan era, conservatives were clear about how they felt
about deficits and the public debt: a balanced budget was good,
and deficits and the public debt were bad, piled up by free-spending
Keynesians and socialists, who absurdly proclaimed that there
was nothing wrong or onerous about the public debt. In the famous
words of the left-Keynesian apostle of "functional finance,"
Professor Abba Lerner, there is nothing wrong with the public
debt because "we owe it to ourselves." In those days,
at least, conservatives were astute enough to realize that it
made an enormous amount of difference whether slicing through
the obfuscatory collective nouns one is a member of the
"we" (the burdened taxpayer) or of the "ourselves"
(those living off the proceeds of taxation).
however, intellectual-political life has gone topsy-turvy. Conservatives
and allegedly "free-market" economists have turned
handsprings trying to find new reasons why "deficits don't
matter," why we should all relax and enjoy the process.
Perhaps the most absurd argument of Reaganomists was that we
should not worry about growing public debt because it is being
matched on the federal balance sheet by an expansion of public
"assets." Here was a new twist on free-market macroeconomics:
things are going well because the value of government assets
is rising! In that case, why not have the government nationalize
all assets outright? Reaganomists, indeed, came up with every
conceivable argument for the public debt except the phrase of
Abba Lerner, and I am convinced that they did not recycle that
phrase because it would be difficult to sustain with a straight
face at a time when foreign ownership of the national debt is
skyrocketing. Even apart from foreign ownership, it is far more
difficult to sustain the Lerner thesis than before; in the late
1930's, when Lerner enunciated his thesis, total federal interest
payments on the public debt were one billion dollars; now they
have zoomed to $200 billion, the third largest item in the federal
budget, after the military and Social Security: the "we"
are looking ever shabbier compared to the "ourselves."
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