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Home Publications Blogs Beat the Press Rewriting History: James Buchanan and the National Debt

Rewriting History: James Buchanan and the National Debt

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Thursday, 10 January 2013 09:04

It is customary not to say bad things about people when they die, but that is not a reason to construct an alternative reality, as the NYT appears to have done in its obituary for James Buchanan. The obituary tells readers:

"Dr. Buchanan partly blamed Keynesian economics for what he considered a decline in America’s fiscal discipline. John Maynard Keynes argued that budget deficits were not only unavoidable but in fiscal emergencies were even desirable as a means to increase spending, create jobs and cut unemployment. But that reasoning allowed politicians to rationalize deficits under many circumstances and over long periods, Dr. Buchanan contended.

"In a commentary in The New York Times in March 2011, Tyler Cowen, an economics professor at George Mason, said his colleague Dr. Buchanan had accurately forecast that deficit spending for short-term gains would evolve into 'a permanent disconnect' between government outlays and revenue.

"'We end up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society,' Dr. Cowen wrote. 'As we fail to make progress on entitlement reform with each passing year, Professor Buchanan’s essentially moral critique of deficit spending looks more prophetic.'"

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This discussion turns the reality of U.S. budget deficits on its head. As can be seen, the debt to GDP ratio was consistently falling in the 35 years following World War II. This was the period when we seeing the indiscipline of Keynesian economics at its fullest bloom. As Richard Nixon famously remarked during his presidency, "we are all Keynesians now."

The debt to GDP ratio began to rise again in the Reagan era as a result of his tax cuts and military buildup. Ironically the piece tells us that the Reagan era was when Buchanan's agenda became "ascendant."  In the post-Reagan era the debt to GDP ratio again began to decline under President Clinton. It rose slightly under President Bush, who is not generally viewed as a Keynesian, and then exploded after the economic downturn caused by the collapse of the housing bubble. 

In short, if Buchanan's argument was that liberal demands for an ever expanding welfare state would lead to chronic deficits, history has shown him to be wrong. If the argument is that the desire for tax cuts and increased military spending, coupled with macroeconomic mismanagement, could lead to large deficits, there is a strong case.  

Comments (10)Add Comment
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written by jerry, January 10, 2013 10:27
Like the chart, is that part of a larger report / anyone have link to it?
Jerry try this link
written by Roger Vance, January 10, 2013 10:55
Significance of red v. blue in this chart?
written by Lex, January 10, 2013 11:44
I couldn't figure out the significance of red v. blue in this chart. It apparently doesn't have to do with which party holds the White House or Congress, it doesn't have to do with war or peace, it doesn't have to do with surplus or deficit year-to-year and it doesn't have to do with upward or downward trends in debt as % of GDP. Obviously I'm missing something; could someone please tell me what it is? Thanks.
James Buchanan Also Provided Economic Ammunition for Progressives
written by Last Mover, January 10, 2013 12:14
While James Buchanan did miss the mark on macro-economics and Keynes, he should not be forgotten in regard to essential contributions in public choice theory. Indeed, Dean Baker implicitly appeals to this this field every time he reminds us how the rich benefit from the nanny state.

From Wikipedia,

Crucial to understanding Buchanan's system of thought is the distinction he made between politics and policy. Politics is about the rules of the game, where policy is focused on strategies that players adopt within a given set of rules. “Questions about what are good rules of the game are in the domain of social philosophy, whereas questions about the strategies that players will adopt given those rules is the domain of economics, and it is the play between the rules (social philosophy) and the strategies (economics) that constitutes what Buchanan refers to as constitutional political economy”.
Ritchie King
written by medgeek, January 10, 2013 2:15
Thanks to Roger Vance for the article link. Also, Ritchie King looks like a talented guy:

http://ritchiesking.com/

...
written by skeptonomist, January 10, 2013 6:00
Ritchie's piece is good, but it is wrong in implying that the increase of debt during the Depression was due to New Deal spending. Even in the Great Depression, deficits were caused primarily by reduced revenue, not increased spending. Deficits reached a maximum of about 5% of GDP by fiscal 1932, and stayed at this level through 1936, then dropped to zero by 1938. There was basically very little deliberate Keynesian spending in the New Deal.

Big deficits and resulting debt have come historically from wars (mostly) and from decreased revenue in major recessions, not from wild socialistic welfare spending programs. Of course since 1981 taxes have been cut so revenue does not match expenditure, but this was a result of supply-side Reaganomics, not Keynesianism.
"red" & blue in the chart
written by watermelonpunch, January 10, 2013 6:23
@ Lex
FYI: It's purple not red.

But anyway, I couldn't find any statement of the significance. However I did find this:
http://qz.com/26062/one-chart-that-tells-the-story-of-us-debt-from-1790-to-2011/
Scroll down to the portion headed "Civil War" and look at that chart and what's written underneath about the time period about "debt surge".

I think blue is perhaps marking the time in which the debt was actively being added to?

That's the best explanation I could find.
...
written by David, January 11, 2013 8:54
I think the blue is just the periods that have a label (Civil War, World War I, ..., W., The Great Recession).
Red and Blue significance.
written by Michiganmitch, January 11, 2013 8:54
The blue bars mark the years of of the time frames of the occurences in gray print to the left of each set of bars.
red/blue bars
written by Lex, January 12, 2013 7:34
@MichiganMitch: I believe you are correct. Thank you.

(Took a course on infographics last summer, and this is the kind of thing that would drive the instructor up a tree.)

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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