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Eighty-Eight Years of Debt Pieties

The Senate is leaving town until July 20 without replenishing the economic aid package that Federal Reserve Chairman Jerome Powell and most economists know is needed. True to form, Republican senators led by Senate Majority Leader Mitch McConnell (R-Ky.) are again exaggerating the dangers of government deficits and debt. They dismiss the bill passed weeks ago by House Democrats to cushion the impact of the coronavirus depression by reciting anew the scary pieties about government spending, deficits and debt that Herbert Hoover and his Treasury Secretary Andrew Mellon recited disastrously 88 years ago. This also prepares them to block further efforts to stimulate growth and economic modernization if Democrats win in November. McConnell tied President Obama’s hands in this way after 2010 preventing a more rapid economic recovery from the Great Recession and doing incalculable damage to America’s working class. Republican handwringing about the risks of government deficits and debt unfortunately rings true with many people because it is such a familiar narrative. In the Spring of 1932, Sumner Slichter, probably the best-known American economist at the time, was one of many economists urging the government to spend, well before this was called “Keynesianism.” Slichter wrote that it was not necessary to be an economist to recognize that more government spending was needed and lambasted “policy makers … who by their reckless speeches … fostered a dangerous popular psychology which greatly increases the difficulty of shifting to a sensible fiscal (spending) policy.” Slichter was a conservative and was not isolated professionally either. Dozens of respected economists, several of them founders of the free market “Chicago School,” joined Slichter in urging more spending while sharing his aversion to unions and other aspects of the New Deal. These economists testified before congressional committees, signed petitions, and sent telegrams to President Hoover. Their arguments for more spending, however, did not sway office holders brought up with the pieties of austerity. The U.S. economy as a result did not fully escape from the Great Depression until enormous spending for World War II showed how false these pieties were. Government spending in three or four years after 1939 put 30 million American soldiers and civilians to work, created respect for American decency and values around the world and led to two decades of epic postwar prosperity without any economic downside. The lessons of this economic history are ignored by McConnell’s band. The “reckless speeches” about deficits and debt that riled Slichter are still the red meat of the Republican narrative that confuses and frightens many Americans. The painfully slow recovery from the Great Recession of 2007-2009 was largely caused by Republicans who cut non-military spending and who remain the shock troops of the Tea Party and President Trump’s base. These “Republicans for austerity” also bear full responsibility for the Trump administration’s failure to have an adequate stockpile of test supplies and protective equipment to distribute to first responders, hospitals, and the American public at the beginning of the coronavirus pandemic. A recent Wall Street Journal article states simply that “President Obama requested more funding for the (national) medical stockpile, but his request was rejected by fiscal hawks in Congress.”

McConnell and his followers for the last two months have stepped up efforts to scare the public with calls to “go slow” with another spending bill and fear-engendering warnings about deficit and debt disasters to come. They scold that failure to plan for this ever-receding danger will lead to inflation, rising interest rates, the “crowding out” of productive private investment, higher taxes, and a bigger government role. This familiar narrative reinvigorates the “dangerous popular psychology” that concerned Slichter in 1932. It reloads themes that already are familiar to the public so that Republicans can renew calls for big spending cuts in Social Security, Medicare and Medicaid as soon as the immediate crisis eases. Republicans would do the country a service if they would stop scaring Americans with dire warning of future woes that never materialize. That is what Slichter told them 88 years ago. The country has the idle resources and the monetary freedom to solve its problems as it could have during the 1930s. The federal government should spend what it takes to deal with unemployment, health care, cratering incomes, starving frontline state and local governments, credit card, auto loan and mortgage debt, failing businesses, rising economic unfairness, climate change and third-class infrastructure. If the government spends enough to resolve these problems, government debt in the distant future will take care of itself as it did gloriously after World War II.

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