On April 20, 1945, Secretary of the Treasury Henry Morganthau, Jr. met with Harry Truman on the eighth full day of Truman’s presidency to inform him of the financial condition of the government. In 1945, the government would spend $99 billion — $88 billion on the war and $11 billion on everything else. Receipts were anticipated to be $46 billion, projecting a $53 billion deficit. Revenues thus accounted for 45.5 percent of expenditures, the deficit 53.5%. By contrast, until fiscal 2009 the largest deficit under George W. Bush, $476 billion in 2004, represented 20 percent of expenditures and 4 percent of a gross domestic product of $11,734.3 trillion.
The proportion of the problem Truman confronted is revealed by the fact that in 1945, the gross domestic product was $223.1 billion, of which the budget deficit accounted for 23.8 percent. The proportionate deficit in 2004 would have been $2.8 trillion. This had been the war against German, Japanese and Italian fascism and had to be fought whatever the cost. One of Truman’s unheralded achievements was that, with an economic philosophy informed by populism, but also by the experience of his failed haberdashery, he presided over the conversion to a mainly peacetime economy and balanced budgets in 1947, 1948 and 1950 — with only one 11-month recession in 1948-1949.
As President-elect, President Obama was not alone in likening the current economic crisis alternately to the fight against fascism and the Great Depression Franklin Roosevelt confronted upon taking office in 1933. The first analogy is absurd and the second distorted by a generation that has no experience of what its grandparents and great grandparents lived through. Its learning of history is as if taught by Classic Comics, with a dash of self-importance.
That is not to minimize the economic catastrophe of 2008, only to warn against the public-policy blunders in 2009 that could derive from exaggerating it. The risk is enhanced by the fact that, politically, the crisis is for President Obama what 9/11 was for George W. Bush: He gets one freebie. Having deftly handled the initial stages of a crisis not of his making, he has enormous good will and, like Mr. Bush in 2002, what he proposes is likely to be approved by Congress. Mr. Bush gave us the war in Iraq, which, among other things, cost Hillary Clinton, who voted for it, the presidency; and gave us Mr. Obama — who had safely spoken against it from the precincts of Chicago. Most of the American people now regret that Mr. Bush’s “freebie” was not more critically examined. Yet many Democrats who now regret going along with the invasion of Iraq are again saying (with David Farragut in Mobile Bay in 1864): “Damn the torpedoes — full steam ahead!” What President Obama asks for in an economic stimulus package he is almost certain to get. However, the profound euphoria at his inauguration will not prevent one-to-two trillion-dollar budget deficits unto who-knows-when from being catastrophic.
When Federal Reserve Chairman Ben Bernanke read the riot act to congressional leaders on September 17, he was echoing his predecessor Allan Greenspan’s famous complaint about “irrational exuberance” in the the markets — only he meant the negative form, called “panic.” Our smartest investors’ bets on the worldwide dispersion of risk had come a cropper. Suddenly, the panic of the prophets was about to dry up the world economy’s very blood supply, its liquidity. These problem gamblers quickly received a $680-million federal bailout. Four months later it is agreed the first half of this money was much too loosely strewn.
No one so far is arguing that under the circumstances an extraordinary intervention wasn’t necessary. Instead, the extraordinary has become ordinary. Bad King George is blamed for squandering the first $340 million, and good King Barence, we are sure, will spend the second half wisely. Then, Congress will vote him an $880 billion down payment on a “stimulus.” All he needs to do is ask. Mr. Obama has not said how he has so quickly repealed wickedness. How will he prevent the self-serving and well-connected from helping themselves. How will he prevent the well-meaning from taking tax dollars from efficient enterprises to prop up inefficient ones? How will he finance a debt to dwarf George W. Bush’s if China is no longer willing or able to buy Treasury Notes? How amidst such debt will he fix Social Security and Medicare? How will he avoid inflation? Perhaps most pertinently, exactly how many dollars will it take our grandchildren and great grandchildren to pay back each dollar borrowed now?
He should say. Jimmie Carter coined the weak term “moral equivalent of war.” War is war, there is no equivalent. But for their own survival politicians view recession as a casus belli. There are worse things, because when the necessary bottom is reached bargain-hunters commence the real recovery. A country that has been living beyond its means for a long time may need a bad recession. No one will blame President Obama unless his actions make it worse for those who come after.
