Rewriting History: James Buchanan and the National Debt
|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.'"
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.