BALANCED BUDGETS AND AMERICAN POLITICS by James D. Savage

BALANCED BUDGETS AND AMERICAN POLITICS

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KIRKUS REVIEW

In this curious history, Savage (Senior Federal Relations Analyst/Univ. of California) begins by telling readers that federal deficits are not inflationary, do not increase interest rates, do no ""crowd out"" private investment, and do not ""kill"" jobs. He never addresses the issue of whether or when deficits may be harmful. Deficits apparently have no ill effects whatever. So, what has 200 years of often strident political debate been about? Savage argues that it has been over a profound disagreement between those who wish to limit federal power and those who would strengthen it. Balancing the federal budget has been a contentious issue since the debates between Thomas Jefferson and Alexander Hamilton. Jefferson feared the ""corrupting"" power of government debt, while Hamilton believed that ""A national debt if it not be excessive will be to us a national blessing."" Jefferson's views carried the day and budgets were balanced, essentially until the Great Depression, and Savage notes that, contrary to political mythology, FDR did not explicitly adopt Keynesian deficit financing as a way out of the Depression. Nevertheless, the Keynesian notion of deficit spending to achieve full employment was embraced by the Kennedy and Johnson administrations. In the 1970's, ""stagflation"" hit, causing high interest rates, unprecedented inflation, and high unemployment; Savage argues that concurrent high federal deficits were largely coincidental. Carter, however, blamed the deficits for these economic woes, and reversed the postwar Democratic reliance on the Keynesian full-employment budget. Democratic support of Keynesianism ended during the deep recession of 1982, when, astonishingly, the Democratic congressional leadership proposed increasing taxes to reduce the budget deficit--the precise opposite of the usual Keynesian prescription for ending an economic recession. Meanwhile, President Reagan, who promised to eliminate the federal deficit by 1984, instead saddled the country with a series of ""structural deficits"" that exceed $100 billion a year, hampering Democratic efforts to increase federal spending on social welfare programs. Political scientists will find much of interest here, but economists will be disappointed by Savage's Pollyanna-ish view of the effects of deficits on the economy.

Pub Date: March 1st, 1988
Publisher: Cornell Univ. Press