Francis Perkins and the US deficit - 2 August 1985
I’m always going to rearrange my books, or I’m afraid I mean to arrange them, as they do in libraries.
Well the trouble is that by now, in an apartment cluttered with about 5,000 books, they’ve all been there so long in a mad non-system of non-arrangement that to put them into any order would upset the picture I have in my head of where everything is.
I can put my hand on anything in a moment because by now every shelf has registered a visual image. Useless for my secretary to ask, with ill-disguised contempt, why a book on early jazz is bang up against a book entitled Climate in Everyday Life, why a book called Facts about Denmark is next to Winston Churchill’s Great Contemporaries. They are there, therefore I see them, therefore I know.
Of course I couldn’t shut my eyes and call off the sequence of books on any given shelf. I just remember the alternation of sizes and colours and bindings and jackets and sometimes, as today, I’m rewarded with a surprise. I was going to talk about the airline industry and was looking for a book on it. I didn’t find it, but where it ought to be was the memoirs of, I believe, the first woman Cabinet officer in America. Her name was Francis Perkins; Madam Perkins, she was called by Franklin Roosevelt who appointed her as Secretary of Labor.
I took her – it – down and came on a fascinating passage in which the late revered economist John Maynard Keynes, to whom President Reagan and his disciples attribute all our woe with loss of Eden, in which Keynes met President Roosevelt for the first time in a call on him at the White House.
Madam Perkins took him in to see the president and retired to an outer office. After about 40 minutes Keynes came out smiling and Madam Perkins went in to ask the president how it had gone. It, historians should note, was Mr Keynes’s introducing the president to the wonders of deficit financing. “Well” said the president, “he talked nothing but mathematics”.
Roosevelt plainly couldn’t make head or tail of the whole theory, which upset him because he once said he got very little about anything except ships and sailing out of books. He preferred to call in an expert and, as somebody put it, take it all in through his pores. This time his pores were closed. So Madam Perkins sat down and explained the theory suggesting to Roosevelt’s increasing delight that governments can afford anything, that it is not necessary to have the money on hand. It can do what a man does who can’t afford a house – borrow from the bank.
Which bank? Ah, that’s where the government has the edge over its citizens; it can borrow from itself. From itself? Yes, at a pinch it can make its money the really old-fashioned way; it can print it. Amazing! Roosevelt felt suddenly very warm and friendly to John Maynard Keynes who had indicated an escape hatch out of the Depression.
But suppose you go on borrowing to the point where you doubt you can repay the principal? Not to worry. So long as you pay the interest nobody is going to keep pointing to the debt the interest is carrying. Wonderful! Roosevelt was always very quick to grasp the nub of a new idea and he grabbed this one and initiated a system now 50 years old.
I don’t know if Keynes ever told him what he liked to tell his students at Cambridge, but Roosevelt would have got the point and revelled in it, the point being that there is a great and vital difference between the economics of private and public life. Keynes said if you owe the Bank of England a hundred pounds and skip the country they will track you down and put you in prison, but if you owe them a million pounds they will make you a member of the board.
Well, down those 50 years this philosophy has come to be so widely accepted that not so long ago an American who won a million and a half dollars in a lottery went to American Express to sign up for a credit card. They checked down-town on his credit rating. They found he had none. He had always bought what he could afford and paid for it in cash, a suspicious character. They turned him down.
The first time I heard the word deficit was in a speech broadcast by the-then Prime Minister, Ramsay MacDonald in, I believe, the autumn of 1931. He announced he deplored a deficit of several million pounds. It sounded shocking. It was all the more memorable because he pronounced it deficit. I looked it up in the dictionary. I’ve just done so again. It says, not at the beginning very clearly, "amount by which a thing is too small" and then "excess of liabilities over assets", finally "deficit spending – the spending of money of funds raised by borrowing, not by taxation".
Well, that’s what the United States has been doing in part ever since the early '30s and mainly in the past ten years. And at least two generations are so used to it as a regular thing as the way government works that all the anxieties of all the bankers, all the salty eloquence of all the senators and congressmen are failing to alarm the public.
The deficit in the past two or three years has become a monotonous nuisance of a word like "poverty", "the flu", "the in-laws", something it would be nice to do something about but something that is as incurable as a common cold. Every other night we hear and see greatly concerned men wring their hands and protest and warn and prophecy doom for the country and the Western world.
Nobody has been able to dramatise the problem accurately and vividly enough to make people see the shape and size of the predicted disaster but this week one journalist came as close as anybody I have heard or read. He is one of the best informed, most literate, sharpest of America’s journalists. He writes twice a week for the New York Times a column and is, of course, happily syndicated around the country. On Sundays he writes a brilliantly-informed and funny column on our language, on the latest twists and turns and idioms and monstrosities of it. His name is William Safire.
On Thursday he attacked, as scores have done before him, the problem, the peril of America’s growing deficit. Ramsay MacDonald’s piddling deficit of a few million pounds would not pay the interest due on America’s debt for one morning. Let’s go back a little, or let’s say when Jimmy Carter came to the presidency, the deficit was just over $40,040 million. At the end of his term in 1980, the country was in the red to the tune of £250 billion. In President Reagan’s first term the debt piled up to $750 billion. The second Reagan administration, his own men, project another 300 billion of debt, what Mr Safire calls a “design for doom”.
By 1990 the revenue as brought in by taxes will fall short of the outlays by well over 200 billion. Since the yearly deficit is already over 200 billion it means that during this second term the government will have to borrow about 330 billion. That is the optimistic estimate based on the presumption that the present prosperity will go smoothly along. Mr Safire asks but what if there’s a slump along the way or a rolling readjustment or a crabwise movement, or some other euphemism for a recession.
When that happens, and it is going to happen, growth will stop, revenues will plunge, costs of welfare will increase and the deficit will mushroom even more. For the first time Mr Safire believes the United States will have no fiscal weapon to help stimulate its way out of the next recession. He guesses that the government will then turn to Mr Volcker, the chairman of the Federal Reserve and ask for money, pump up the money supply.
Of course the Fed will do it and then Mr Safire paints a quick picture of what this will do to the American people. First – an inflation the likes of which we have never seen. Social security will go bust and if there is still that trillion-dollar debt, a thousand billions, those in their late fifties today will be impoverished by inflation at retirement while today’s teenagers will be crushed by a huge tax bill when they enter the workforce.
The Democrats, of course, blame this staggering but climbing deficit on Mr Reagan and his policy of cutting taxes to which Mr Safire politely replies, “Baloney!” Ever-rising taxes were suffocating initiative and needed to be cut back, but there are conservative Republicans like Mr Safire who don’t agree with him. One of them, who has risen from voluntary retirement this week, is the former senator Howard Baker, the tiny, tenacious senator from Tennessee who came to national exposure and instant fame during the Senate committee’s hearings on the Watergate mess.
Senator Baker retired from the Senate last year but not just to brood and cultivate his garden, rather to cultivate his grass roots and grow a national constituency for a run up to presidency in 1988. Mr Baker says the president is wrong to keep on saying “New taxes over my dead body”. Baker called the tax-cutting policy “a riverboat gamble” and he doubts it is going to pay off. In any case, he thinks there will have to be a tax increase soon and he thinks an astonishing thought, coming from a Republican, that Senator Mondale – remember him? – was right to run his campaign for the Democrats on a tax increase.
Well, meanwhile the president has defied his own Republican senators and rejected their plan for a budget which requires and oil import fee and other taxes. “No taxes” says the president and his loyal lieutenants in the Senate, most of all his leader Senator Dole, feel he has betrayed them. Senator Dole said this week, “We’re going to have chaos in September and October on the debt ceiling” and Mr Safire ends his grim prophecy with the sentence, “The president, by embracing his policy of masterly inactivity now, by keeping all his demagogic pre-election promises, stands at the bridge smiling into the fog as we head towards his trillion dollar iceberg."
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