Taming the Borrowing Beast

The last time the United States operated on balanced budgets, that is, spending no more money than collectable in taxes, was during the Democratic Administration of President Clinton. In its final annual quarters, that administration’s budgets yielded a surplus; that is, the federal government collected more in taxes than it spent.

According to the still dominant business cycle theory of British economist Lord John Maynard Keynes (1883-1946), governments should take in more money than they spend during good times so that in hard times they may ease the pain by spending more than they take in.

The Biblical Joseph was a kind pre-Keynesian, interpreting Pharaoh’s dream as forecasting seven “good years” in which to “pile up grain” in “reserve for the seven years of famine” to follow (Genesis 41:35-36). I corresponded with Lord Keynes’ brother, Sir Geoffrey, a distinguished Blake scholar about my edition of William Blake’s Four Zoas. I think Sir Geoffrey might recognize his brother Maynard’s prototype in the patriarch Joseph.)

In the 1970s, President Nixon corrupted Keynes’ theory for taming the business cycle by using it to tame the electorate. Risky inflationary spending made people foolishly happy enough to re-elect him.

Continuing in the Nixon tradition, President George W. Bush, at the first sign of declining economic prospects in 2001, applied a big dose of Nixon voter happiness balm with risky inflationary tax cuts to the wealthy, and, as if that was not enough, began a war in Afghanistan. In 2003, came more tax cuts to the wealthy and the Iraq war.

Tax cuts plus war spending are wildly inflationary. They induce voter euphoria for a while—the seemly endless feast of dollars garnished with patriotic fervor are delicious—but eventually the happiness bubble breaks, and we are at the mercy of a grouchy Borrowing Beast.

That beast leaves us, in the words of Alan Greenspan, with choices that are no longer between “the good and the better,” but between “the bad and worse.”

How do we, an electorate addicted to an illusory prosperity from a political financing fix, tame our Borrowing Beast?

First, as in the ‘twelve steps’ method, we have to face the fact of our addiction.

Next week: Cold turkey, more junk or slow but sure?