Recently, during a mini-Twitter war with a John Maynard Keynes enthusiast, this fellow sent me a link to an article on “Monetary Sovereignty.” You may already know where this is going. Don’t you know that “deficits don’t matter!” The article’s main theme was that we must run budget deficits or we’ll have a recession!
Monetary sovereignty means a country controls its own currency. Unlike EU member countries who are on the Euro, we can simply print, or create money if we need it, so we can always pay our bills and it keeps the economy going!
The article went on to say, that historically when the USA ran budget surpluses and paid down its national debt, it went into recession in the years just following.
Keynsians usually either take credit or assign guilt by association; it’s really all they have when they lose the theoretical debate. There were several recessions and a couple of depressions in the twentieth century, and even more in the nineteenth, so by listing them and showing we paid down the national debt before they happened, there it was, proof!
I recently published a book called, Economic Clarity or Political Confusion, you can look at it here: econclarity.com, so I’ve done some research on those years, and there it was again, smoke and mirrors to avoid the obvious.
Regarding the twentieth century, the article pointed to the Great Depression, and just before that, through the nineteen twenties when the USA ran budget surplusses and paid down the national debt through most of the decade. It also pointed to the 2001 recession, and how we paid down debt from 1997-2000.
Immediately, questions came to mind. What about all the other recessions in the twentieth century? Especially since the 2001 recession was so minor compared to so many others when we didn’t run surplusses or pay down debt just before. How about the early 1990s, when we were running gaping deficits just before, during, and after that deeper recession. The same is true in the early ’80s, the late ’70s, the early 70s, etc.
What’s obvious on its face? This article’s author simply picked dips in the business cycle with which to confirm his bias, rather, to perpetrate the Keynesian fraud.
It’s much easier to do this with the nineteenth-century data when the business cycle was much choppier, but when we were paying down the debt most of the time; any downturn you pick we’ll have paid it down just before. What he didn’t say, is that the only time we ran deficits in the nineteenth century was when the economy slowed and tax receipts dropped. There was no Keynesian astronomical spending and the budget always approximated balance except in a major war.
After the American Revolution, the debt to GDP ratio was about 30%. We paid the debt down, except during economic downturns, so that by the mid-1830s we paid off the national debt! It was tiny after that until the Civil War, when we ran it up to about 30% of GDP. We paid it down consistently after that through the rest of the century.
Here’s the key to understanding the nineteenth century. It was before Keynesianism gripped our society, causing such confusion; the insane Keynesian notion that “demand creates its own supply,” wasn’t published yet. John Maynard Keynes gave that theoretical excuse for “progressives” to drive the economy “from the demand side” in his 1936 book, The General Theory of Employment, Interest, and Money.” Government debt has skyrocketed since!
So why can’t we adopt a simple plan to pay down the debt and balance the budget?
Sen. Rand Paul’s “Penny Plan” seems very reasonable. A rough summary is, we cut 1% for each of five successive years, and we achieve a balanced budget. Spending then can’t increase more than 1% annually after that, allowing the economy to grow faster over time, enabling debt reduction.
What happened when it went to a vote? No Democrats and just a few Republicans voted for it. Forget a tiny successive cut; they can’t even agree to reduce built-in increases every year! When some Republicans suggest reducing additional spending, the Democrats call the media to report that the GOP wants to starve babies, kill people, and they run ads showing Republicans throwing grandma off a cliff! To foreigners or anyone who doesn’t watch the American media, they do these things; it’s not hyperbole! How can we expect our children to act like adults when our political leaders act like children?
A Balanced Budget Amendment is another idea, if we must, but realize, we didn’t need one before we began building up debt in peacetime in the 1930s. It was before leftist economic theories, especially Keynesianism gripped our society! The Penny Plan (and sticking to it if we were to get it), reforming entitlements or getting a balanced budget amendment don’t stand a chance until we exorcise ourselves of the Keynesian economic heresy first. We must kill John Maynard Keynes before he kills us!
We must get this right or we face a public debt catastrophe. Do good people leave their children THEIR virtually insurmountable debt? We can get out of this but understanding must come first! Go to: econclarity.com for a free sample read!