When I was a small boy at the start of the 1950s, my father gave me my first economics lesson. “Bobby,” he said with obvious concern, “you and your children and your children’s children will be repaying the national debt created by Franklin D. Roosevelt.”
I didn’t know what a national debt was, but I remember being scared out of my wits.
Dad was wrong, of course. Even though the national debt then was a much higher percentage of the national economy than it is today, it shrank as the economy boomed. My children have never mentioned FDR’s debt. My granddaughter (almost 2) will never pay a penny of it.
Dad, now 96 and still in good health, recognizes how wrong he was then. He admits FDR’s deficit spending not only won World War II but it also got America out of the Great Depression.
But now another gaggle of deficit hawks is warning us against more federal spending. “The current federal debt explosion is being driven by an inability to stem new spending initiatives,” warns Alan Greenspan in Friday’s Wall Street Journal, calling for budget cuts and saying “the fears of budget contraction inducing a renewed decline of economic activity are misplaced.”
My dad learned from his mistakes. Alan Greenspan obviously didn’t.
Contrary to Greenspan, today’s debt is not being driven by new spending initiatives. It’s being driven by policies that Greenspan himself bears major responsibility for.
Greenspan supported George W. Bush’s gigantic tax cut in 2001 (that went mostly to the rich), and uttered no warnings about W’s subsequent spending frenzy on the military and a Medicare drug benefit (corporate welfare for Big Pharma) — all of which contributed massively to today’s debt. Greenspan also lowered short-term interest rates to zero in 2002 but refused to monitor what Wall Street was doing with all this free money. Years before that, he urged Congress to repeal the Glass-Steagall Act and he opposed oversight of derivative trading. All this contributed to Wall Street’s implosion in 2008, that led to massive bailout, and a huge contraction of the economy that required the stimulus package. These account for most of the rest of today’s debt.
If there’s a single American more responsible for today’s “federal debt explosion” than Alan Greenspan, I don’t know him.
But we can manage the Greenspan Debt if we get the U.S. economy growing again. The only way to do that when consumers can’t and won’t spend and when corporations won’t invest is for the federal government to pick up the slack.
For Greenspan now to say we don’t need more stimulus — when 15 million Americans are still out of work, when retail sales are dropping, when the rate of mortgage delinquencies is still in the stratosphere, when Europe and Japan are tightening their belts — is like Tony Hayward to say the Gulf spill shouldn’t worry us.
America’s long-term debt bomb is a future problem to be sure. But it has nothing to do with current spending initiatives. It will be due mainly to baby boomers’ demands for health care.
Our immediate challenge is to get enough demand back into the economy to pull ourselves out of the deep hole Greenspan helped create. That will require more deficit spending in the short term — relief to state and local governments, extended unemployment benefits, a one-year payroll tax holiday on the first $20K of income.
The $55 billion jobs bill now before Congress isn’t nearly big enough. Yet evidently it’s too big for Senate deficit hawks who blocked it Thursday before leaving town. Presumably Greenspan approves of this devastating lack of responsibility.
My father is a wise and loving man. I wish him a wonderful Father’s Day.
Greenspan I can live without.