Greider: $1.4 Trillion Deficit Isn’t Enough!
I’ll admit it: William Greider is an easy target. The former Rolling Stone reporter and current national affairs correspondent at The Nation has a habit of making a fool out of himself, to the delight of the right and to the chagrin of the brighter segments of the left. Left-wing economist Paul Krugman, reviewing his 1997 anti-globalization book One World, Ready or Not, said that “the main lesson one really learns from [Greider’s book] is how easy it is for an intelligent, earnest man to trip over his own intellectual shoelaces.”
In his latest Nation column, Greider takes those concerned about the $1.4 trillion budget deficit to task, claiming that their concerns are “grounded in ignorance and discredited nineteenth-century bromides.” Funny from a man who claims that economics is “not really a science so much as a value-laden form of prophecy,” and one who as recently as 2007 was referring negatively to the Reagan administration’s “exploding deficits” in the 1980s. He goes on to cite massive deficits during World War II as proof that spending a lot of money we don’t have necessarily produces fantastic results:
In an October 21 editorial arguing against just such additional spending, the Post warned citizens to disregard progressive commentators (like myself) who offer the example of World War II, when the government ran deficits many times larger than the current one. “In the deficit debates to come,” the Post insisted, “Mr. Obama should heed the hawks.”
Wrong. The mobilization for World War II produced one of the most remarkable success stories in US economic history. War production not only overcame lingering weaknesses from the Great Depression but transformed the economic system into the modern powerhouse that became the platform for our long-running postwar prosperity. All this was achieved by the government, largely with borrowed money. By war’s end Washington had piled up federal debt totaling around 120 percent of annual GDP (nearly double today’s debt level).
During the wartime emergency the government took charge of the economy and rapidly shifted the industrial system to armaments while suppressing domestic consumption. Deficit spending force-fed the rapid development of new technologies and new basic industries. In a few short years, economic output expanded by about 75 percent. Despite rationing and wage and price controls, Americans at large were replenished: per capita income rose by almost 70 percent (with industrial jobs opened to women and blacks), and since people could not consume much, the savings rate reached extraordinary levels–23 percent of incomes. The government borrowed these savings and spent them in the national interest. The store of personal savings fueled the pent-up consumer demand driving postwar prosperity.
What Greider can’t seem to understand–and what his dime store Keynesian worldview won’t allow–is that the post-war United States did so well because nearly every other major developed economy was literally bombed out. It is easy to do comparatively well when your international competition is a pile of rubble and/or under the thumb of a totalitarian superpower. The Bretton Woods system established in 1945 required member states, among other things, to accept the dollar as the reserve currency and the United States spent decades providing liquidity to war-torn Western Europe. Furthermore, this system–which assumed U.S. economic hegemony–coupled with the reckless fiscal policies of future American administrations, was largely responsible for the severe economic problems experienced during 1970s. Great, right?
But it gets worse. Here’s his advice for the Obama administration:
Let’s hope President Obama and the political community brush aside the deficit hysteria and do what they need to do to restore the economy: that is, spend more money–a lot more money–and run up even larger deficits for some years to come. [original emphasis, original italics bolded due to formatting limitations]
Unfortunately, Greider probably doesn’t have to worry about not getting his wish (PDF).