Vital Signs

Repudiating the National Debt

Before the Reagan era, conservatives were clear about how they felt about deficits and the public debt: a balanced budget was good, and deficits and the public debt were bad, piled up by free-spending Keynesians and socialists, who absurdly proclaimed that there was nothing wrong or onerous about the public debt. In the famous words of the left-Keynesian apostle of "functional finance," Professor Abba Lerner, there is nothing wrong with the public debt because "we owe it to ourselves." In those days, at least, conservatives were astute enough to realize that it made an enormous amount of difference whether—slicing through the obfuscatory collective nouns—one is a member of the "we" (the burdened taxpayer) or of the "ourselves" (those living off the proceeds of taxation).

Since Reagan, however, intellectual-political life has gone topsy-turvy. Conservatives and allegedly "free-market" economists have turned handsprings trying to find new reasons why "deficits don't matter," why we should all relax and enjoy the process. Perhaps the most absurd argument of Reaganomists was that we should not worry about growing public debt because it is being matched on the federal balance sheet by an expansion of public "assets." Here was a new twist on free-market macroeconomics: Things are going well because the value of government assets is rising! In that case,...

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