by Richard Sale, author of Clinton’s Secret Wars
The chief result of the struggle between the impulse to reform and classical economic liberalism in the early part of the 20th century was the welfare state. These partial triumphs of reform occurred because more and more of the population wanted an increase in bargaining power with the great concentrations of wealth, some additional leverage that would provide some reprieve from the harshness of Fate and Misfortune, some badly needed security and protection for the bulk of the people that it had never enjoyed.
Conventional wisdom – which is to say sanctified hearsay and cliche – had argued for years that the American economic system had no flaws -- that capitalism was a process ordained by God to separate the weak from the strong, the energetic and daring from the ordinary and inert.
The dogma that claimed Big Business system was God-ordained and that the millionaire was the finest flower of American civilization was at last toppled from its pedestal because the dogma of conventional wisdom had been rendered obsolete by events. People may find it hard to reason, but most of them are able to see, and when dogma cannot account for the facts of experience, dogma falters.
Yet in America, today one of most intellectually uninformed countries of the modern Western world, it is surprises no one to find that conventional wisdom has once again raised its bald, crinkled and toothless head on the subject of the Balanced Budget. Until the oncoming of the Great Depression, the Balanced Budget was the bedrock principle for American capitalism or, as Galbraith puts it, “the sound and sensible management of the public purse..” FDR devoutly believed in it when he came into office, and as did his predecessor, Herbert Hoover.
In decades past, there were radio broadcasts purveying folksy little images which alleged that the government was just like a household and had to take in as much money as it paid out. Anything else was reckless and wasteful. But once again events had worked to undermine cliche and dogma. People began to see tht financial responsibility did not depend on trite little rules of household thrift but an effective integration of far more potent and intractable factors. In fact, it was mass unemployment that worked most to show reality must be viewed. Extra government spending was needed in order to put people back to work, and putting people back to work meant giving them the ability to buy goods the purchase of which would in time would help to add more people to the workforce, etc.
During the Depression, even the Republicans and the Business Community feared to repudiate deficit spending because they were afraid of the public reaction. Yet in back of their fear, they still clung to the dogma that national salivation lay with cutting welfare spending and increasing tax rates. Increasing taxes of course increased a consumer’s costs of living and reduced his or her income , and thus demand. When this was tried in 1937, it caused a near-collapse of the infant recovery, as I noted in an earlier piece.. The program only increased unemployment and suffering and reduced the public demand for more goods and was quickly abandoned.
The chief point is that deficit spending is not a sinister device that attempts to enslave the national liberty as the Republicans insist. Even President Herbert Hoover, the most orthodox defender of American capitalism, had tried deficit spending during the 1928-9 crisis. In spite of his public homage to the Balanced Budget dogma, Hoover ‘s receipts had not kept pace with his outlays and his government had run up $3 billion in deficit spending by the end of 1932. FDR came into office like Hoover, believing in reduced government expenditures and a balanced budget and only slowly modified his beliefs ,under the duress of circumstances, chiefly after the 1937 incident related above.
The new cry for a Balanced Budget is simply an outdated facet of that dogma that claims that any restraints on unfettered predatory economics by means of Factory Acts, unemployment relief, social security or even laws against child labor would result in chaos and the end of everything sound and good in the world. What irks me most about the latest Republican rant about cutting government is that this is just another way to revive the doctrine that an expanding sense of concern and obligation by the stronger members of a society towards the weaker will threaten economic progress. It is the same heartless assertion, clad in a nicer dress, that the free market, if let alone, can solve anything, ignoring the fact that the failure of Hoover showed clearly that the government had to become an agent of national betterment since voluntary or state efforts were clearly inadequate.
It is my view that the current cry for spending cuts is simply another bogus cry for a bogus reform that the Republicans know in advance will not work.
As Galbraith points out the popular protest against the wastefulness and inefficiency of government is part of our political DNA and one cannot go wrong raising the cry. But the cry ignores the fact that very important government functions can be performed even though they are wasteful and it is easier to cut the function than eliminate the waste. Yet the cry is always raised. Cutting expenditures is more theater than reality, but it makes good copy. Ask the Tea Party people.
I am obviously not an economist, simply an ordinary person trying to puzzle out the meaning of events. But in the Republican criticism of deficit spending, I sense that that the GOP stance is not well thought out or meant to improve anything except mass desperation in misfortune and, by using such means, increase the GOP’s political power.
One fact should not be forgotten, however. In economic crises, the Republicans over and over have shown that they cannot lead. When the 1929 crisis came, Hoover’s measures were orthodox business ones -- cut production, cut employment, and maintain prices – in time the economy would heal itself. But the facts show that this course of action only made matters worse.
In the 1936 election, when the GOP lacked the courage to activity try and repeal the New Deal, it spent its energies instead trying to sabotage its Democratic rival by lying about it. On the subject of Social Security, for example, companies put into their worker’s pay envelopes lurid claims that in paying a payroll tax, workers were giving money to Congress that they might never get back. It was dishonest and, in hindsight, disgusting.
What we are seeing today is more of the same.