The Shrinking Deficit & The Stagnant Economy

Herbert Hoover would be pleased by the New Austerity budget of the Federal government, thanks to the Sequester.  But massive budget cuts are not just trouble for air traffic and poor seniors on Medicaid, they are terrible fiscal policy.  Washington is taking the country down the wrong road.

Don’t be fooled by the stock market run-up, because profits may be good, but growth is mediocre — this is still the worst (slowest) recovery from a major recession on record. And stock gains don’t do anything for the working people, since only  the top 20% own 95% of stocks.

In an economy still stuck in the mud and plagued by unemployent in the millions, the correct policy is for the federal government to stimulate spending by running deficits, as FDR proved in practice and economist John Maynard Keynes in theory during the Great Depression.












Yet the elite consensus today is that budget deficits and federal debt are a great danger to future economic health, so the US (and Europe) are busy pursuing exactly the wrong fiscal policy, just as Hoover did after 1929 — until the New Deal turned things around and revived the economy.  First, everyone forgot the dangers of runaway finance that led to the blow-up of 2008; now, everyone is forgetting the lessons of the recovery of the 1930s.

Even worse, not only is the deficit NOT the real problem, it’s actually SHRINKING today.  Thanks to massive budget cutting and an uptick in tax revenues, the federal budget deficit has gone down, as calculated by Goldman Sachs’ chief economist, Jan Hatzius.

So the bogeyman of the deficit is more like a will-o-the-wisp.



Richard A Walker is the director of the Living New Deal.

3 comments on “The Shrinking Deficit & The Stagnant Economy

  1. Andrew Laverdiere

    How ironic. On a website dedicated to the legacy of a truly visionary leader, a professor is citing the very “Economic Royalists” that FDR denounced in his 1st inaugural. In particular, one of the most egregious of the Wall St. institutions! “Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.” With the ‘Return to Prudent Banking’ Act (reinstatement of the 1933 Glass-Steagall act) being re-introduced in the 113th Congress as HR-129, isn’t it time to dispense with timid academic sophistries? FDR had no problem in categorizing Keynes as “just a mathematician” in his remarks to Frances Perkins. Why stick to a slightly less insane version of monetarism that was born out of the legacy of the hack propagandists of the East India Company and their business of empire, slavery, drug pushing, and conquest (Adam Smith, Ricardo, et. al), when we have the legacy of Alexander Hamiltons dirigistic American System approach, that, whenever it has been implemented as policy has meant real growth, prosperity, and stability, as FDR proved abundantly. Particularly in light of the Hjalmar Schacht approach of todays Central Bankers with their unending hyperinflationary quantative easing for the Too Big to Fail (and Jail) speculative gamblers, and parallel policy of murderous austerity. Its time to quit playing by the rules of a crooked game.

    • Andrew,

      You appear to be upset that I cited the economist John Maynard Keynes in support of an anti-austerity budget. You seem to think Keynes was a monetarist or only believe in monetary policy, but his models clearly support fiscal policy and deficit spending in a recession or depression.

      Keynes was no angel, of course, and he got rich playing the stock markets in Britain. But he support FDR’s policies and even opposed Roosevelt’s attempt to balance the budget again in 1936 (which was a major error on FDR’s part). Roosevelt was no angel, either, but he was a great president who did what he had to do to save the country and stop the suffering in the Depression.

      Roosevelt’s controls over Wall Street and reform of the banks was also brilliant by comparison with today’s love affair between the Administration and the Finance Capitalists. We could certainly use a cleaning of the Augean Stables of Wall Street. (But I don’t think you can call the Fed’s QE policy ‘hyperinflationary’ in a stagnant economy with low interest rates — indeed, given hyper-austerity in fiscal policy, the Fed’s easy money policy is a frantic attempt to keep the economy afloat.

      I think we can agree on that and not quibble over Keynes, who is the economist that the present-day neoliberals/conservatives love to hate.


  2. Andrew Laverdiere

    Hello professor. I was more concerned that you were giving credence to a paid liar (misnamed an economist) belonging to the epitome of corruption in high places, namely, Goldman Sachs. With the release of the Angelides Report and subsequent Libor scandal, along with destruction caused by the bubble machine, it is obvious that anything stated by the factions of casino finance would have little to no credibility with anyone cognizant of the long standing history of their hostility to reason and the nation.
    As for Mr. Keynes, alas. Long standing assumptions regarding his role as an influence on the administration have persisted due to the repeated lies told too often by factions that would prefer that the economic history of the United States be confined as an appendage of the British Empire, ignoring instead, the long standing feud between the nationalist polices of Alexander Hamilton, Friedrich List, and Mathew & Henry Carey versus the British Empires system of looting, slavery, and empire, of which Wall St. has always played part as their enforcers. One only has to look at the role played by Wall St. in their effort to shut down the various New Deal agencies through their lawsuits during FDR’s time, but their continuing effort to finally destroy every last vestige of the New Deal through the privatization of the TVA, the repeal of Glass-Steagall, and the gutting of Social Security.

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