As communism fades from memory, fewer and fewer of us are going to get the reference Iwan Morgan makes in his absorbing book. Morgan refers to his subject as “the other red peril.” Communism, at least the Soviet variety, is a good bet to stay settled in the ash heap of history. But federal budget deficits look like they are now blooming into a long and healthy future. The other red peril?
It was only a few years ago that historians’ minds boggled at the magnitude of the Reagan deficits. Topping out at $220 billion a year nominally, 6 percent of GDP—what a wild world it was back in the 1980s. Now in the late Great Recession, we have seen seven times that dollar level in nominal terms and nearly double as a percentage of GDP.
Who said anything about peril? After all, in the Keynesian mind-set, deficits are more than an unqualified—they are a necessary—good. There are no trade-offs in the strict Keynesian universe to budget deficits. Burden on the grandchildren? Not so, because they can be covered by fiat money. Inflationary? Itself a boon, in that given a progressive tax code, inflation lessens inequality. Irresponsible? No again—the Keynesian revolution was “a remarkable intellectual event,” as Robert E. Lucas said in the 1970s. And as we have heard from quite a few quarters in our time of troubles of late (see Paul Krugman), the problem with the 2009 stimulus was that it was not big enough.
The reason for a book on the recent history of deficits is that they were there. “Gross as a mountain,” as Shakespeare might say. Morgan has good grounds for starting his story with Jimmy Carter. There was a deficit of alarming size ($25 billion) in 1968, but it was nixed the next year when came a tax surcharge, the minimum tax, and the accompanying recession. Deficits came in the late Nixon and Ford years as well, but clearly these were therapy for the worst recession since the Great Depression of 1973–75. However, 1976 began three straight years of real GDP growth over 4.6 percent, and deficits have been endemic ever since. This seems to make no sense; hence the book. [End Page 438]
Also in 1976, there was indubitably no Vietnam War anymore. The Great Society, at that point, we can further agree, was at best the walking dead. Again, this is when our new era started. In Morgan’s words: “U.S. withdrawal from the Vietnam War did not lead to restoration of balanced budgets. Moreover, economic recovery from the sharp recession of 1974–75 only brought the deficit down in the late 1970s to a GDP level comparable with its occasional high points [emphasis added] in the postwar quarter century. The mushrooming of the gap between outlays and revenues in the early 1980s confirmed that a new fiscal era had dawned. The United States has been living ever since in what can be termed the age of deficits” (2).
When you climb a mountain, you pick a face to attack. In the case of this Everest, Morgan chooses presidents. This is a curious option, but a good one. It is curious not least because with great fanfare in 1974 Congress seized control of the budget process. This was when the system of two yearly fiscal resolutions was put in place, the Congressional Budget Office was founded, and Nixonian impoundment of funds by the president became nigh impossible. And yet, as Morgan is correct to point out, it is precisely since this flurry of congressional activity that the public has by and large seen the deficit (and its scarce twin, the surplus) as one of the prime “grades” to be given a president. Before, the public generally saw deficits as a creature of Congress and the president as a perennial scold against them.