Fiscal Policy and the Federal Debt

Tuesday, April 01, 2014

Bill White, who served as mayor of Houston from 2003 to 2009 and was deputy secretary of energy in the Clinton administration, tells the story of federal leaders who imposed clear limits on the use of federal debt for nearly two centuries until 2001, when elected officials broke the traditional link between federal tax and spending policies. For the first time in history, the federal government cut taxes during war, funded permanent new programs entirely with debt, and became dependent on foreign creditors. In America’s Fiscal Constitution: Its Triumph and Collapse, White outlines practical lessons learned from the nation's five previous spikes in debt.


Bill White

Comments [7]

resident alien from Williamsburg

oops, excuse some overheated spelling...:-)
tried to get it in before the end of the show

Apr. 01 2014 02:26 PM
resident alien from Williamsburg

Duh, I learned in high school! economics class(30 years ago), that one role of government spending and finance policy is to smooth-en out the (sometimes wild) swings of a cyclical economy by being anti-cyclical. Meaning to jumpstart the economy by government spending/investment in infrastructure in a downswing and slowing down an overheating economy by spending less, saving more and paying down any debts...

Unfortunately, the US is not good at doing both.
To the contrary, out pure ideological reasons or plane stupidity, the GW Bush administration first started 2 unfunded wars that were a complete waste, and then on top of it they gave the Bush tax cuts (mostly to the rich)!
What a complete disaster! You have to balance the budget! But you have to do it anticyclical! What's true for individuals & companies is also true for governments: If you have to spend/invest first, then you also have to save & pay off your debt later! Luckily? the US is able to get away with more slack, because the dollar is the international lead currency, and it is tempting to just turn on the printing machines if China doesn't want to extend the credit line...

Apr. 01 2014 02:20 PM
mejimenez from manhattan

Mr. White, for all his supposed progressivism, is just promulgating the hopelessly confused conventional wisdom. Our government's budget is not like a family budget. By definition, a sovereign issuer of its own fiat currency cannot go bankrupt. Get familiar with Modern Monetary Theory; check out, for example,

Apr. 01 2014 02:02 PM
jgarbuz from Queens

Nations have gone bankrupt in the past and come back. I don't think the US is going bankrupt any time soon with the huge amount of energy resources we now have again.

Apr. 01 2014 01:54 PM

We also defaulted on our Revolutionary bonds, and JP Morgan essentially bailed out the country in the Panic of 1893. True, these may fit his "4 valid reasons for debt", but I don't see the bright line...

Apr. 01 2014 01:44 PM

Please comment/clarify on the relationship (ratio) of debt/deficit to~as a percentage of (or viably exceeding 100%) the GNP.

Apr. 01 2014 01:03 PM
Joe MIrsky from Pompton Lakes NJ

From my book, Ornamentally Incorrect

Debt for Dummies
“The War of the Rebellion brought new and extraordinary demands, and the debt went booming upward at the rate of more than a million and a half a day. On August 31, 1865, when the debt stood at its highest point, the outstanding principal was $2,844,549,626.56…”
— Handbook on Currency and Wealth, George Burnside Waldron, Funk and Wagnalls, 1896.

That’s a little over $40 billion, $1151 per capita, adjusted for 14.08X inflation. In 2012, the national debt was $47,800 per capita.

Deficits for Dummies
…the crisis they [deficit scolds] predicted keeps not happening. Far from fleeing U.S. debt, investors have continued to pile in, driving interest rates to historical lows.
— Paul Krugman in the New York Times, November 25, 2012

Despite the Administration's inflationary money policies and its huge program of spending and borrowing, the Government's credit does not suffer, as is proved by the acid test of the market for its securities.
– The Literary Digest, June 16, 1934

Copyright © 2014 Joseph Mirsky

Apr. 01 2014 12:49 PM

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