Why did U.S. debt policy change drastically in the 1930s?
Why did the US start running repeated high deficits in the 1930s? And why is it that the only deficits before 1930 were for war only, but from that point onward they've been almost always for "stimulating the economy"? or to "create jobs"? Why did this change take place beginning with Hoover-FDR, and ever since we've had to run chronic deficits, virtually every year?
What has been the purpose of these non-war deficits which were non-existent prior to 1930? Is this question not supposed to be asked? Is there some commandment that we're not supposed to raise it or try to answer it? or that we're supposed to lie and say that no such change took place?
Why did the economy not require the chronic deficits up to 1930, and in the late 1990s, but did require them after 1930-1995? It has nothing to do with the change in 1971. We were already running the chronic deficits BEFORE 1971, and we stopped doing the chronic deficits for a short time in the late 90s. So how can a change in 1971 explain this?
When I look in wikipedia, I see that the US has had continuous national debt except for one year, 1835-36. So I don't know what you're talking about.
Yes you do. Look at the graph again. Note the sudden change in 1930-35:
See the difference in debt-to-GDP
BEFORE 1930. Can't you see that it suddenly jumps to 35% in 1930-35? whereas before then it had never reached that high? and usually never even came close?
And can't you see that AFTER that point it has remained above 30% almost totally? usually over 40%? (And subsequent to this graph it has risen to over 100%.)
Can't you see that the earlier pattern of war debt -- (-1790, 1860-65, 1915-20) followed by gradual pay-down of the debt -- continued up through the 1920s but then abruptly came to an end with the new debt of 1930-35?
In most those years before WW1 the government
paid down debt rather than running up new debt. They were mostly SURPLUS years. The debt was always
less than 30% of GDP. So there was debt, but at much lower levels, increasing sharply at rare points only, to pay for war and for no other reason -- with a slow pay-down period after each war.
The numbers year-by-year are at
https://www.usgovernmentspending.com/spending_chart_1792_2017USb_19s2li011mcn_G0f (scroll down for the chart)
From
1792-1930 we had:
90 surplus years and
49 deficit years -- Almost 2:1 surplus years to deficit years.
But from
1931-2017 we've had:
7 surplus years: 1948, 1951, 1969, 1998-2001 and
80 deficit years -- Over 10:1 deficit years to surplus years.
Or, only 7 surplus years, and
a whopping 80 deficit years!, as it were.
So you're saying nothing changed from 1930 to the present?
Get serious, and answer: Why did it change in the 1930s? You have not answered this, or responded to it honestly. This is a major change which took place beginning with Hoover-FDR. What was the need to run up high debt at that point, when there had not been any such need previously?
Would you say that as a whole, we are wealthier or poorer than say 1930? Is our standard of living higher or lower?
But it was much higher in 1930 than it had been in
1830. Of course the living standard keeps increasing from one century to the next. This has nothing to do with explaining the new deficits after 1930.
Most everybody would say higher.
And you attribute that higher living standard to chronic deficits beginning in the 1930s? You think it was new debt which brought the new prosperity? What brought it in the
earlier centuries? You never heard of science and technology? You never heard of the earlier poverty being reduced by new science and technology? the changes and new discoveries? the Industrial Revolution? You don't understand that it's these advances which brought improved standard of living?
Don't you understand that the living standard in the 1920s was vastly greater than that of the 1820s? and the 1720s? This progress was not produced by new government debt, but by new science and technology and industrialization, plus increased global trade, which continue to raise our living standard up 'til now.
And yet these advancements were still accompanied by mistakes of politicians and policy-makers and economists, who sometimes made the nation worse off than it would have been otherwise. There was bad debt, some bad wars, bad economic practices, slavery, oppression, etc., which had a net negative effect, despite the benefits gained from the new advancements.
Even if there are more dollars that are individually worth less than they were 80 years ago, we are . . .
The circulation of dollars is not the point. Those money and banking practices can still be debated as to whether they produced net benefit or net harm. Bad debt per se made people worse off, not better. Even if the Federal Reserve brought some improvements, how did the chronic deficits beginning in the 1930s improve anything?
. . . that are individually worth less than they were 80 years ago, we are far better off.
Yes, but not due to any banking or money theories, or increased debt, or grand theories of economists or politicians, but to new science and technology and industry. Not even due to sociologists or political scientists or philosophers or clerics. Where's the evidence that these authority figures and pundits ever made society better off?
So exactly what evil is [excess] govt debt perpetuating?
So you're saying the evil doesn't exist if the overall living standard is increasing at the same time?
Then, what evil was
slavery perpetuating 200-300 years ago, during a time when virtually everyone was becoming better off?
At minimum the debt costs us the $200-$300 billion each year for the interest payments. This cost of course is "evil," as all cost is, but you can claim we're getting something for it, and so it's worth this cost. I.e., "jobs! jobs! jobs!" promised by the politicians who run up this debt.
The following shows that the "jobs" created by the federal deficits, over the last 30 years, have cost about $1 million each, taking the annual interest payments as the cost for them, estimating these payments at $200 billion per year, and assuming it has created 6 million jobs.
The two graphs show the annual interest payments to be near $200 billion per year, average, though it's really higher. Actually the graphs don't seem to agree exactly, but they give enough to tell us that the average is something over $200 billion per year, from 1987-2017.
Figuring it at only $200 billion per year, then over 30 years (1987-2017) that's a cost of $6 trillion. And what do we get for this? Suppose the annual deficits are subsidizing a total of 6 million jobs "created" by this debt. Each year's deficit keeps these created jobs going, without adding any more jobs. So it's 6 million jobs provided by the $6 trillion over 30 years, or a total cost of one million dollars ($1,000,000) per job.
Of course you could assume the annual deficits are really providing 12 million jobs rather than only 6 million. In which case the cost to taxpayers for each job is $.5 million rather than 1 million. No one can seriously claim the number of jobs created is more than this. It's probably even less than 6 million, but there's no way to determine the real number.
If these jobs pay about $50,000 each per year, the total wages for the 30 years is $1.5 million. So for that 30 years the taxpayers pay 1 million $$$ to sustain that job which paid $1.5 million total. (Of course the actual cost is probably higher.)
Is one job for 30 years worth paying 1 million $$$ for?
Obviously there's no way to calculate how many jobs are "created" by the original deficits. If the deficit increases later, some extra jobs are created by it, but if it decreases later, the number of jobs created decreases. The same deficit is needed each subsequent year to maintain those jobs initially created by the first deficit(s).
So the cost per job created is likely in the range of $1,000,000, over the 30-year period. It could really be much higher, but at least near to this range. There are other costs too, as far as all the jobs "created" in the economy through corporate welfare, plus also "job creation" programs (federal, state, and local), etc., which add still further to the $2 billion per year federal-deficit cost.
We can't precisely measure how much damage the excess govt debt has done. Not enough to reverse the Industrial Revolution or turn the clock back to the Dark Ages. Just as slavery did not. But that doesn't mean there has been no damage, or that it wouldn't have been better without it. It doesn't mean that today the high debt level is making us better off, anymore than slavery 200 years ago was making people better off during a period when people overall were becoming better off. Harmful practices also happen during periods when the overall change is a net improvement.
Virtually all economists say 100% debt-to-GDP is too high and does damage. Even 50% is too high according to many of them, and it has been over 100% in recent years. This damage is not refuted by pointing out the improvements going on due to science and technology, just as you don't disprove the damage done by slavery by citing the overall improvements happening for most people during the slavery period.
I've explained it over and over.
No, your theory of "sectoral balances" does not explain why it was necessary for govt debt to vastly increase beginning in the 1930s.
Your theory says nothing about what changed at around 1930 to require this new debt. If your savings theory is correct, we should be able to find economists and others back then complaining about the dire need for people to save more, and that there was a need to run up new debt in order to offset a lack of savings. Which is laughable. It's a joke to suggest that there was wide clamor for more savings in the 1920s or '30s, or ardent pleas from economists to increase the savings rate.
There have never been any such ardent pleas or clamor, back then and up to the present.
You know the reason given is always "jobs! jobs! jobs!" (preventing recession) or "economic stimulus" etc. Why do you want to obscure this and pretend it was a need for more savings?
Your theory about "sectoral balances" and savings did not exist in the 1930s.
The govt has a monopoly on issuing the currency. It can issue all it wants. So bond holders will always be paid. The debt can be rolled over continuously, forever.
As long as there are new bond-buyers at low-enough rates. But what if their greed for higher rates increases? What if the interest has to double in order to attract enough of them? or triple? There's no guarantee that the demand for bonds will be high enough to always pay the current obligations. During recession more is needed to pay the higher costs, while the revenue to pay for it decreases. To claim absolute certainty about the future demand for T-bills is fraudulent. The prospect for new bond buyers always being plentiful is dubious.
If this demand dries up, or it becomes too expensive to get enough of them, default is one option -- i.e., more likely than printing money and massive inflation.
Or, since there is no longer a commodity restraint on the money supply, the issuance of debt could be halted altogether, and all outstanding bonds retired.
And those bond-holders paid with what?
You mean just "print" the money to pay them = inflation. No, default might be better. We would do whatever is better, and there's no reason to insist that massive inflation has to be better than default. You cannot prove that the choice always has to be for massive inflation rather than default. Or that the beneficiaries of the govt programs will gladly see their programs cut in half. No, the choice might be to let the bond-holders take a bath rather than screw a hundred million citizens dependent on the tax-paid programs.
When the lenders become scarce, we could face a crisis requiring:
either
Inflation, or
Default, or
Austerity. Take your pick.
You cannot say such a crisis/choice is impossible. That is blind faith only.
Once you say they'd have to print money to pay the bonds, if necessary, you're admitting it's a possibility.
In such a crisis, the public might well clamor for default rather than massive inflation or massive shut-down of the programs they're dependent on. The whole debt program is based on a promise that the crisis can never happen. And this is a promise only, based on faith, not on fact.
Do you have figures showing that there were no private savings in the late 1990s when the gov't "taxed back" all of its spending?
I never said there were no private savings. I said that in the aggregate private financial assets diminished.
So in theory private savings might be pressured downward if the budget is balanced or in surplus (not a proven fact, but maybe in theory). Or rather, a deficit might induce artificially-higher savings. Even if this is granted, why is it the government's job to promote artificial savings? Obviously there's a limit to savings or to anything else, depending on conditions. Why is it necessary for government to artificially induce savings beyond the natural level dictated by the circumstances?
If there's really some kind of dire need for increased savings, the borrowers will just have to pay higher interest rates to attract the lenders. If there's a real need, the market will take care of it. The judgment that the savings rate is too low is subjective. No one can prove that a certain minimum savings rate is mandatory for the economy -- the idea that savings are too low is subjective opinion only, not fact.
And likewise do you have figures to show that there were no savings in the U.S. prior to 1930, except during the high-debt years when they ran deficits to pay for war? I doubt that you have data on which to base this savings theory.
I've never said there were no savings.
So then we agree that there is no demonstrable need for the government to manipulate something to boost the savings rate up above its natural level, and thus no need for these high deficits. There is still some savings during a time of a balanced budget or even a surplus, and there are market forces to attract lenders if the need for them is high, without the need for govt to run up deficits to artificially boost the savings rate, even if it is lower during a balanced budget period (which has not been proved, but theoretically might be the case).
It's not true that the gov't must run up chronic deficits in order for there to be private savings. There have been private savings in years when the gov't ran surpluses. If perhaps those savings were somewhat less than in the deficit years -- then so what? Who says how much exactly the private sector must save? Who are the overlord barons who presume to dictate this?
All dollars come from the govt. If all dollars spent into the economy in a given year are taxed back, then there are no new ones.
= a shortage of dollars? Is there really such a thing?
If there are fewer dollars over several years, then the fewer dollars in the economy means lower prices, which increases the real spending power.
So then all this is only about money supply. In which case the only need is to keep it stable, to restrict/prevent inflation or deflation. It has nothing to do with savings per se, but about keeping the money supply steady. There are ways the Central Bank does this without esoteric schemes to produce high public deficits. Such theory doesn't explain why we suddenly started running high deficits in the 1930s.
Can we stop this charade about "savings" and acknowledge that the high deficits are done in order to appease the "jobs! jobs! jobs!" clamor. Why does anyone refuse to admit this? How did Trump get elected? Or how did Bernie Sanders become so popular? because they preached a need for "savings! savings! savings!"? Stop it! It's obviously the "jobs! jobs! jobs!" babble that made them popular. You know that.
So, why can't we start to question this "jobs! jobs! jobs!" religion? and stop pretending that the pressure for higher deficits was due to anything other than this popular folk religion?
(this Wall of Text to be continued)
