There’s a game of chicken going on with the budget and whether or not the government will shut down. I think everyone has written a lot about the need to expand the short-term deficit in terms of government spending and tax cuts, not contract the government through painful cuts that will cost GDP and risk the recovery.
So instead, I’m going to enlist the liberals of the 1930s; maybe this cool retro liberal style will give the Democrats some spine. I’ve blogged this before, but it’s one of my favorites so it gets reblogged. It’s also fun to see how similar the arguments are then and now – Brad Delong digs up a 1932 letter from Hayek that is identical (and even clearer) form of the pain caucus. Not much changes in these debates, sadly.
This is the New Republic in 1938 going “I told you so about balancing the budget too early FDR.” Listen up, because this is what the liberal econoblogosphere is going to sound like next year if the Democrats cave and try to turn it around later.
Here’s Bruce Bliven, “Confidential: To the President,” New Republic, April 20, 1938:
THE NEWSPAPERS have told us during the past week or so, Mr. President, that you have at last decided to return to the policy of “pump-priming” through large federal expenditures. Amounts running as high as four or five billion are being mentioned. I am one of the millions of people who earnestly hope that these plans will be put into effect.
No one can any longer doubt that the present depression is an extremely serious matter. The Federal Reserve Board index has sunk from 118 a few months ago to 79 at present…
I can well understand, Mr. President, with what grim humor you must have listened, in recent months, to the anguished hows of business men-anguished because you had taken their advice and they didn’t like it. For years, every self-appointed spokesman for business had been demanding that you should balance the budget. To be sure, nobody suggested that we should accomplish this by increasing taxation to the level of the British, for example, which is about three times as high as our own. On the contrary, they wanted you to perform this mystic and sacred rite by economizing in expenditures. Since nearly all the abnormal spending in your administration had been for relief, that is obviously where the wanted the cuts to be made.
There is a deadly parallel between the downward movement of the business index and this enormous drop in federal spending. I am not saying that the curtailment of relief was the only cause of the trouble, or even the chief cause…no one can doubt that the sudden withdrawal of hundreds of millions of dollars of federal relief funds, the smashing of thousands of projects all over the country, did contribute materially to the creation of our present misery. Your triumph over your foes-on this point, at least-is complete.
To be sure, they do not hate you any the less because you have demonstrated that on this extremely important matter they were wrong and you were right. If anything, they hate you more than ever. One of the great mysteries that historians of the future will puzzle over is why you have aroused such bitter animosity….Taxes during your administrations have on the whole been amazingly light…Your very mild efforts to regularize Wall Street, to make the electric utilities behave, to obtain recognition of union labor, have been matters on which most sensible men have agreed with you. They have been directed chiefly against the small minority of bandits whom the majority has always wanted to discipline if it could.
Those who were demanding economy, a year ago, and now don’t like it, have gone back to the old cry about “confidence.” If you would only do something to restore confidence, they say, business would go on zooming across the landscape, full of vitamins…
With the exception of the amazing phrase “full of vitamins”, that last paragraph is exactly the debate we are having right now. Business would go on zooming across the landscape, full of Red Bull?