On Debt follies and deficit hysteria:intelligent voices from the past

Among the many 1000 books in my library is a macro economics text, Macroeconomics:The measurement,analysis and control of aggregate economic activity, 3rd edition from 1968 written by Thomas Dernburg who was then  Professor of Economics at Oberlin college and Duncan McDougall who was Professor of Economics at the University of Kansas. I have the book because it, alongside Gardner Ackley’s text, Macoeconomic Theory  were the basic texts for my first course in macro-economics that I followed with Clarence Barber and Rubin Simkin at the University of Manitoba in the mid sixties.I have the 1968 edition because I only bought the book some years after the course in the mid sixties relying for the most part on Ackley, Keynes’s The General Theory and my lecture notes during the course. Ackley, by the way ,taught at the University of Michigan. Dernburg and McDougall have some very important things to say about public sector deficits and debts which I want to repeat and cite in this new age of deficit hysteria.

” A fully managed compensatory fiscal policy that sets its sights on the targets of full employment, price stability and rapid growth is incompatible with the notion that budgetary balance should also be viewed as  a target of  economic policy….The national debt ….is viewed by fiscal conservatives as a horror which defies our puritan heritage. Projected increases in the debt, moreover, are regarded as living proof that the government of the United States has become the captive of sinister and subversive forces bent on sapping our national life of its vital fluids.” (p.399) They go on to point out that the debt ”follies” of the past include efforts to combat depressions, the cost of financing wars, raising capital to make productive investments in infrastructure and education where private sector investment was inadequate. Furthermore, these public investments would only be harmful if ”the alternate private use of the resources would have yielded a greater marginal social benefit. ” But since the non war year debt was recession induced ”the resources which the government mobilizes would otherwise have been idle…(hence) their mobilization by the government could therefore not possibly be harmful either to the present or to the future.”(p.399-400)…”Public debt and private debt are fundamentally different although this fact is avidly denied by those who make budget balancing a fetish….The nation as a whole cannot, …borrow resources from itself in one year and pay them back in some subsequent year. Thus the idea that the present debt creation comes out of the hide of future generations is pure nonsense…It should be remembered that for every taxpayer who feels himself to be ‘mortgaged’ by national debt, there is also a bondholder who finds himself wealthier by his ownership of such debt.” (p.400) We can add to this that future generations may inherit these public sector debts but they also inherit previous generations’ assets so the burden is a mirage.

Dernburg and Macdougall wrote their first edition more than fifty years ago but their analysis has considerable contemporary relevance.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
This entry was posted in austerity, deficit hysteria, deficits and debt, European debt crisis, Greek sovereign debt crisis, Italian debt crisis, J.M.Keynes, Uncategorized. Bookmark the permalink.

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