The Cult of Deficits

February 15, 1965

In 1932 the Hoover Administration was spending at the rate of $4.6 billion a year. “Stop the spending!” candidate Roosevelt demanded. The majority of voters agreed, and elected him President. Today the Federal government is spending $121.4 billion a year, and planning to spend $127.4 billion in 1966, a new record, 28 times as much as in 1932. The increase alone in next year’s spending will be greater than the whole amount spent in 1932. But the Johnson Administration insists that this is “not extravagant,” and Congress probably will agree. Such is fiscal progress.

“For three long years,” warned President Roosevelt on March 10, 1933, “the Federal government has been on the road to bankruptcy. . . . [By the end of the fiscal year 1934] we shall have piled up an accumulated deficit of $5 billion. . . . Too often in recent history liberal governments have been wrecked on the rocks of loose fiscal policy.” The deficit that President Johnson is deliberately planning for fiscal 1966 will be the 30th in 36 years. It will bring the accumulated deficit since the end of 1930 not to $5 billion, but to $306 billion. Yet the concern most frequently voiced today is not over whether we may suffer the consequences of loose fiscal policy, but whether our deficits and spending are big enough to assure “growth” and “full employment.”

$6 BILLION INCREASE

Mr. Johnson was able to squeeze at least his “administrative budget” spending below $100 billion to the Macy’s bargain figure of $99.7 billion. Practically all the newspapers headlined that figure alone. The true spending of more than $127 billion (whether as measured by the “total cash payments” budget or the “national income account” budget) barely got a mention in most of the news stories.

There is not space here to analyze in detail the various bookkeeping gimmicks by which even the “administrative” spending figure was kept below $100 billion. (Those interested may consult articles in The Wall Street Journal of Jan. 26 and 27.) But one major point must be made. The new budget increases real spending over the present fiscal year, not by a mere $2.2 billion, but by at least $6 billion (as shown both by the full-cash and the accrual-basis budgets).

The theory of the new fiscal policy is that we must plan big budget deficits to prevent even bigger budget deficits. Nevertheless, on the argument that the “1966 administrative budget deficit of $5.3 billion is $1 billion lower than the 1965 deficit,” Mr. Johnson concludes that we are making “continued progress toward a balanced budget.” The argument is unconvincing. True, his estimated 1966 deficit is $1 billion lower than his revised estimate of the 1965 deficit. But it is $400 million more than his original estimate last year for the 1965 deficit. And if he has underestimated the 1966 deficit by the same amount, it will be $6.7 billion—or more than the $6.3 billion now estimated for 1965. Mr. Johnson’s assurance may prove to be as much a will-o’-the-wisp as Roosevelt’s of Nov. 29, 1935: “We can look forward with assurance to a decreasing deficit.”

EMPLOYMENT RECORD

But now nearly everybody is placidly accepting deficits as normal practice, in bad times and good. They are necessary, it is said, to assure “full employment.” But in the past they have notoriously failed to do so. In each of the years from 1931 to 1940 inclusive, the Federal government ran a deficit average 3.6 percent of the gross national product. During those ten years there was average unemployment of 18.81 percent of the labor force. The same percentage of GNP and of the labor force today would mean that even deficits averaging $22 billion a year could be accompanied by more than 14 million annually unemployed.

But isn’t the deficit policy a smashing success today, as its champions contend? President Johnson in his Economic Report boasts that “unemployment dropped from 5.7 percent in 1963 to 5.2 percent in 1964 and was down to 5 percent at year’s end.” He neglects to compare the record. In the four Kennedy-Johnson years (1961–64) unemployment averaged 5.5 percent; in the eight benighted Eisenhower years (1953–60) it averaged only 4.9 percent.