Deficit spending — when more is spent by the government than is collected in taxes — has frequently been a policy of the U.S. government. Alexander Hamilton, Secretary of Treasury under President Washington, promoted the policy of incurring debts as a method of establishing sound credit. Many succeeding administrations followed suit. However, debts were incurred mainly as a result of wars, and periods of postwar prosperity made them easy to erase. Government debts had not been used to attempt to improve peacetime economic conditions. As a result of the Great Depression, however, a new era was ushered in — an era in which fiscal policy included government borrowing aimed specifically at lessening the effects of the depression.
In campaigning for the presidency in 1932, Franklin D. Roosevelt promised the American public that a balanced budget would be maintained. In fact, during all his years in the White House, prior to our buildup for World War II, a balanced budget was uppermost in his mind. Philosophically, he was against the government’s going further into debt — but, in order to support his many relief programs, his advisors felt that it was necessary to spend more. As program after program was passed — programs that would cost taxpayers billions of dollars — the choices were increased taxes or government borrowing. So, to give the American people a “New Deal,” a budget deficit was needed.
When he first took over the presidency, Roosevelt had the backing of many segments of society — not only the general public, but bankers and businessmen. The depression affected everyone. Business was hurt badly; government borrowing was far more acceptable to the business community than higher taxes. Such was the attitude until 1936, when bankers and businessmen began to change their views. As recovery began to take effect, the deficit was not considered necessary. Even though he did not favor greater debt, Roosevelt had his priorities. Convinced that deficits were temporary and not a permanent fact of fiscal life, he was exultant about the pump-priming consequences of spending. In his budget message of 1936 he stated:
Our policy is succeeding. The figures prove it Secure in the knowledge that steadily decreasing deficits will turn in time into steadily increasing surpluses, and that it is the deficit of today which is making possible the surplus of tomorrow, let us pursue the course we have mapped.
As unemployment decreased during those early years of pump-priming, there seemed to be some grounds for President Roosevelt’s optimism. Then, one year after his second inauguration, unemployment began to rise. Why, in spite of this pump-priming, was there a recession within a depression? The pump was not running; prosperity generated by deficits had not survived the withdrawal of the stimulus. Were deficits to become a permanent part of government policy?
Looking back upon those deficit days of the New Deal, it is well to note that the average yearly federal budget deficit was about three billion dollars, out of an entire federal budget of six to nine billion dollars. The federal government was borrowing a larger portion of its operating expenses in the 30s than it is today.
However, after the Second World War, the United States had far rosier economic prospects than it does today. This country was the world leader in technology, and emerged from WWII as the world’s pre-eminent military power. Our major industrial competitors in Europe and Japan were rebuilding from a devastatingly destructive war. Today, however, the U.S. faces stiff competition on all fronts.
In the early 1980s the Reagan administration pursued a “supply-side” economic policy. A number of economic theorists, most notably Arthur Laffer, advocated deep cuts in taxes, particularly on businesses and those with higher incomes. The rationale was that the savings would be invested in job-creating productive capital. Theory predicted that government revenues would increase, even though tax rates were lower, because the overall production pie would be bigger. However, at the same time, the U.S. engaged in a large military buildup, aiming to spend the Soviet Union into insolvency. The result of lowered tax rates and increased military spending was a large federal budget deficit.
Unfortunately, the “supply-side” tax cuts didn’t work out the way President Reagan’s economic advisers expected. For the most part, the savings were not invested in productive capital but in speculation in real estate and the stock market. Tax revenues did not increase anywhere near as much as was hoped, and the nation is now faced with an ever-growing debt.
In the 1930s, the U.S. government tried an innovative program of using deficit spending to help get the economy out of a depression. Business cycles have come and one since then, and deficit spending has become established as a tool that can blunt the edge of recessions. However, government deficits today threaten to grow uncontrollably, recession is still an ever-looming possibility, and economists still search for root causes and solutions.
1. How did the deficits during the New Deal differ from past deficits?
2. Why did President Roosevelt feel it was necessary to incur a deficit?
3. Explain why bankers and businessmen changed their views toward a deficit in 1936.
4. What is the difference between “deficit” and debt?
5. Compare personal debt with national debt. Who borrows the national debt, and who pays it back?
6. How did supply-side economic policy increase the deficit?
Reader, Be Ware!
An Army with No Bullets
Posted by Anita Folsom
On March 1st, $85 billion in cuts both to military and domestic programs will take place, unless Congress acts. Not everyone is alarmed by this possibility. Representative Steve Scalise (R., La.) says, “The most important thing is we finally cut spending in Washington.”
On the other hand, Leon Panetta, former Secretary of Defense, has warned that such cuts to defense spending would make the United States a second-rate power.
Tabacco: I must assume Panetta means, “USA won’t be able to flex its muscles and intimidate Rest of World the way it now does because of its Military Might, not its moral stance on Issues!” Of course Panetta would never say that in those terms!
We must always be wary of Political Types, who make UNEXPLAINED ASSERTIONS such as “such cuts to defense spending would make the United States a second-rate power”. Make Panetta explain in SPECIFICS exactly what that means or swallow that GENERALIZATION with a pound of salt, not a grain!
All of this talk about cuts for military spending is happening while the spending for entitlements is at record levels. Has this ever happened before?
Tabacco: Talk was all it was! Democans & Republicrats got together to SAVE WAR FUNDING (which has very little to do with national security, but everything to do with War Profits & Congressional Profits under the guise of ‘National Security’).
In the end you had to know these Bozos would rather Die & Go To Hell than cut Military Spending, which is tantamount to CUTTING THEIR OWN FINANCIAL THROATS!
Yes, during the first two terms (1933-1941) of President Franklin Roosevelt, as my husband Burton Folsom and I describe in FDR Goes to War, Roosevelt spent lavishly on social programs such as the Works Progress Administration (WPA), Agriculture Adjustment Administration (AAA), and National Youth Administration (NYA).
Tabacco: Now isn’t that just AWFUL – spending ALL THAT Money on Common Folks with FINANCIAL WOES instead of those ELITISTS, whose Pocket$ already BULGE WITH LOOT! What could Roosevelt have been thinking!
Is there anyone out there in Blogland, who still doubts these Folsoms are Selfish Republicans (as if there were any other kind)!
At the same time, he slashed military spending. FDR’s predecessor, Herbert Hoover, had spent about 16% of the federal budget on defense. Roosevelt cut that percentage to 8.2 in 1934. Defense spending wouldn’t again reach 16% of the federal budget until 1940.
*Tabacco: The Folsom Figures imply 48.75% FDR cuts in Military Budget. Cutting from 16% to 8.2% is cut of 7.8%. 7.8%/16% = 48.75% cut. Either Figure, 48.75% or 51%, is very close to Cutting Military Spending by half! If we did that TODAY, America would still be the World’s BIGGEST MILITARY SPENDTHRIFT – all for the WAR PROFITEERS!
Did somebody say, “National InSecurity”?????
The Folsoms present us with the 2-Alternatives for FDR to consider during the Great Depression:
A- Continue to uncontrollably Finance Military Spending to satiate the War Profiteers – or
B- Try to get the rest of Americans out of Desperation the only way possible – by cutting Military Spending when no War was being fought.
The Folsoms preferred Option A, which should be obvious to one and all! They say, “Damn the People!” (Of course not in so many words – that would be Political & Financial Suicide)
As a result of FDR’s cuts, by 1935 military supplies were so low that General Douglas MacArthur, Army Chief of Staff, spoke on Capitol Hill, pleading for enough funding to supply bullets for 100,000 soldiers. The U.S. Army was smaller than the armies of most European countries, including the Netherlands.
Tabacco: Hint – 1935 was 6-YEARS prior to December 7, 1941!
Why did Roosevelt follow such a dangerous path? Because spending on the military didn’t win him as many votes as did his spending on social programs. The WPA, for example, was a gold mine of dependable voters for Democrat candidates. One official in New Jersey even answered the phone at the local WPA office, “Democratic headquarters.”
Tabacco: I wonder which side of American Political landscape these folks reside and what is their favorite Pet: Elephant or Donkey!
Roosevelt and his staff studied voting patterns in swing states and funneled federal monies to specific districts. For example, in New York City just days before one federal election, the AAA announced that each school age child would receive free milk. Across the country, WPA funds poured into areas where more votes were necessary for a Democrat victory.
Tabacco: And Republicans did/do funnel MONEY into those GOP Suburbs, Farming States & Corporate Welfare Funds – the Folsoms neglected to mention that!
FDR built up such momentum about how he was “helping” the American people that he managed to get reelected again and again, even with high unemployment and a weak military. In 1936, unemployment still stood at 16.6%; yet, Americans by the millions voted for another four years of FDR as president. In 1940, unemployment was over 14%, but FDR maneuvered to be re-elected, partly because of the war in Europe.
Tabacco: Just perhaps the American Voters remembered which Group of Presidents got them into this FIX in the First Place:
Harding, Coolidge & Hoover
Now which Political Party Nominated these Dingbats?!
Maybe GOP could have won one of those 4-FDR Elections had they chosen to run a Democrat instead of a Dingbat!
In 1941, many chickens came home to roost. Thousands of American soldiers, sailors, and marines were caught in the Pacific when Japan attacked that December. Our forces were using antiquated weapons because of years of defense cuts. Thousands of those Americans died in battle and in prisoner-of-war camps.
Tabacco: The Folsoms got it wrong again, but I’m not about to correct their naïveté!
During World War II, many of FDR’s social programs were finally dismantled. Congress ended the WPA and NYA, for example, citing the war emergency as making them of little value. But Congress couldn’t go back in time to strengthen our military and provide quality armaments to our fighting men at the beginning of the war. That would take time. A weak military needs time to re-arm and train. Perhaps we should remember that lesson today.
Tabacco: Do the Folsoms have Vested Interests in Military Armaments unilaterally and incessantly? Or are the Folsoms just your common, everyday Republican Grass Roots Dingbats? Are they in fact the Basis of ‘All In The Family’? Should we not in fact refer to them as “The Bunkers”!
After reading the Folsom’s Article, you may safely infer these guys are Republicans! Be that as it may, provided we can trust their Figures, republishing their Article was essential to consolidate the first Article’s assertions.
Tabacco is NOT afraid to publish Drivel along with useful information when the opportunity presents itself. Seeing through Republican Political Disingenuousness is what I do best!
Before you judge ANY EDITORIAL, you must ascertain the Political Viewpoint of the Author. That is particularly essential when the Author does not identify himself as Tabacco does. I am a Registered Democrat. Nobody could read my stuff and conclude that I am a Republican! I was either not old enough to Vote or not born yet during Slavery, Reconstruction & Segregation; so Voting Republican has never been in my deck of cards! And, No, I never met Abraham Lincoln!
That Concept of ‘Judging the Source’ is also extremely Valid when viewing TV Political Ads! When you see Anti-Di Blasio Ads on your screen, concluding those Ads were paid for by those with Vested Interests in Privatized Charter Schools is a sensible, educated guess.
Likewise Pro-Cuomo Ads praising him for his Educational ‘Good Deeds’, concluding those Ads were paid for by those with Vested Interests in Privatized Charter Schools is also a sensible, educated guess.
In order to save America, somebody will have to tighten his or her belt! The Ideas are 100% FALSE that the
Greedy Capitalists can continue to grow
Richer & Richer FOREVER UNDER CAPITALISM
while more and more Jobs are Outsourced abroad creating more and more Employment in the USA,
while We the People/the Working Class also can thrive and prosper at the same time,
that fossil fuels like gasoline, oil, natural gas and coal are inexhaustible
and that if we are Poor & Unsuccessful Financially, it must be OUR FAULT!
Can we continue to spend like Drunken Sailors for Military Expansionism despite the Fact that Terrorism is
NOT a Nazi Threat,
not a Napoleonic Threat,
not a Fascist Threat,
Not a Russian Communist Threat,
NOT EVEN a Threat from that Superpower, Grenada,
that Reagan invaded so successfully!
The War We Couldn’t Lose!
(Definitely NOT ‘The Mouse That Roared’!)
To read the Image above (or any Image here), simply Click once on that Image or better yet, Click twice on the URL to read it in its entirety!
We cannot go on forever under the Banner of
Republicans want to ‘Cut Spending’, but only for the Rich & Corporate! They want to RAISE TAXES on Average Americans: That’s what it is when you CUT ENTITLEMENTS such as
Child Care Credits
When you Cut Entitlements, YOU RAISE TAXES ON THOSE, WHO RECEIVE THOSE ENTITLEMENTS! – GOPers Never Tell You That!
No ECONOMIC SYSTEM can make it Possible for Everyone to Prosper! However, Capitalism makes it Possible & Likely that the Very Few will Prosper Astronomically while We The People STAGNATE!
Eventually the World will lose Confidence in the American Dollar, and indeed in America! When that Eventuality is finally manifested, the Glass House that is CAPITALISM must fall too!
Should you doubt this Prediction, I suggest you read the History of America from the 1800s until the present day – but without blinkers or rose-colored glasses! Then say to me that this Economics of Capitalism, along with Fossil Fuels, is INEXHAUSTIBLE! Go ahead – MAKE MY DAY!
*51% Military Budget Cut Source: Documentary, ‘The World Wars’, Episode “A Rising Threat”
Tabacco: I consider myself both a funnel and a filter. I funnel information, not readily available on the Mass Media, which is ignored and/or suppressed. I filter out the irrelevancies and trivialities to save both the time and effort of my Readers and bring consternation to the enemies of Truth & Fairness! When you read Tabacco, if you don’t learn something NEW, I’ve wasted your time.
Tabacco is not a blogger, who thinks; I am a Thinker, who blogs. Speaking Truth to Power!
In 1981′s ‘Body Heat’, Kathleen Turner said, “Knowledge is power”.
T.A.B.A.C.C.O. (Truth About Business And Congressional Crimes Organization) – Think Tank For Other 95% Of World: WTP = We The People