Deficits and Class Warfare

Deficits have long been used as an instrument of class warfare, and even of revolution and counter-revolution. In the French Revolutionary era King Louis XVI was forced to convoke the Estates General in 1789 because the financial crisis was so severe that he had to reassure the Third Estate (and the financial markets which they dominated) that financial reform was in the offing. As expressed by one of the major activists of the time, Comte de Mirabeau, “The deficit is the nation’s most valuable asset.” (Quoted and put in context by Gaetano Salvemini in The French Revolution 1788-1792.) In this case the situation got badly out of control and resulted in a revolution, the fall of the feudal regime and monarchy, the guillotining of Louis XVI and Marie Antoinette, the Napoleonic era, and a transition to a new bourgeois society.


In England the threat of the growing national debt was considered dire by the elite at each phase of the debt’s enlargement, and, writing after the Napoleonic Wars in the early 19th century, Lord Macaulay noted that “At every stage in the growth of that debt it has been seriously asserted by wise men that  bankruptcy and ruin were at hand.” But, Macaulay went on to say, even after the post-Napoleonic-War rise of the debt’s size to the fabulous level of 800 million pounds, when those wise men were now sure the end was near, it wasn’t. “After a few years of exhaustion, England recovered itself and the bankrupt society not only proved able to meet all its obligations, it grew richer and richer so that the growth could almost be discerned by the eye.”


Government deficits have always been viewed suspiciously by the business community as there is always the possibility that government will fall into the hands of irresponsibles who will spend recklessly, service the wrong people and ends, and produce inflationary conditions. It wasn’t till the Great Depression and the rise of Keynesian economics that deficit spending became accepted public policy and was integrated into mainstream economic thought, although even then it remained worrisome to business and conservatives and opposed by many. It was also noteworthy that despite the enormous deficits of World War II and resultant huge national debt, here again bankruptcy and ruin didn’t follow, the country got richer and richer, and the debt burden fell steadily with the rise in the GDP and tax revenues, till the coming into office of Republican President Ronald Reagan. The debt/GDP ratio fell from 112 percent in 1945 to 27 percent in 1974, rising sharply again only in the Reagan era and later, to 71 percent in 2012.  In the “liberal” era, from roughly 1940 to 1970, economic models proliferated that showed how economic growth could make—and had regularly made —what appeared to be frightening debt levels, manageable.


But the tide changed in the late 1970s and after, with deficits and inflation treated as central threats, the Chicago School and Milton Friedman displacing Keynesianism as the dominant core of economics. In our time, also, the deficit and its threat have become a more active instrument of the right, used in opposition to “populism” and to help dismantle the welfare state, and, with Keynesianism,  taking on a more militaristic hue. We may recall that Bill Clinton claimed that the bond market had stymied his desire to “put people first,” although he continued sincerely to “feel their pain.” So he kept his budget in good order, with the help of the stock market bubble and mini-boom, and the associated rise in tax collections. In his last three years in office he ran a budget surplus and chose to reduce the national debt rather than invest in people-first social projects.  He was (and remains) a first class trimmer who knows which way the winds-of-power blow and adjusted (adjusts) his sails accordingly.


Even before Clinton, the 1 percent’s attitude toward budgets and deficits had its classic display in former Citibank Chairman Walter Wriston’s sharp 1978 critique of Democratic President Jimmie Carter’s budget deficit, which Wriston claimed was “diverting available capital from productive private investments to finance public expenditures.  Only a reduction in the federal deficit would reverse this trend.”  But with Reagan in office in 1988, Wriston said that we must distinguish between capital and operating budgets, and that the normal household does not treat its home as a current expense, so that we need not worry, as there is “near balance in the operating budget.” There had been no distinction between operating and capital budgets with Carter. The business-trustworthy Reagan could run deficits and ran big ones. Carter should not and was under fire for smaller ones.


This priority system was also made evident in the Congressional elections of 1994, with a Republican victory that was a high point in Newt Gingrich’s political career. A late 1994 Forbes/ Gallup poll found that 88 percent of  338 corporate CEOs thought the Republican victory would help “the country,” and only 2 percent thought it would be detrimental.


Although Clinton had put the bond market first, he was felt to be not completely reliable and on important matters like environmental rules the Republicans were greatly preferred. Clinton had pushed for and signed the North American Free Trade Agreement, ended the New Deal federal welfare guarantee, and was doing a fine job in building the incarceration state and protecting the Pentagon budget in the wake of the fall of the Evil Empire. But there was still too much feeling of pain and (mainly nominal and potential) responsiveness to the interests of his popular base. The Gingrich Republicans were happy to inflict pain.


With the victory of George W. Bush in 2000, once again a trustworthy representative of the 1 percent was in power, so there was an intensification of the one-sided class war, notably regressive tax cuts, a new arms boom and international aggressiveness, and a surge in deficits. The national debt grew substantially during the Bush terms, as it had in the Reagan years, without producing a “Tea Party” concerned with Big Government and without the mainstream media, pundits, or the Democratic Party leadership getting very agitated about the threat of national bankruptcy and urgent need for deficit control.


With the return of a Democrat to the presidency in 2008, the familiar pattern ensued: The deficit once again rose in importance for officials and the media. The “Tea Party” came into existence to protest Big Government and government deficits and debt and it got attention levels in the media not justified by event numbers.  As with his predecessor Democrats, Carter and Clinton, Obama leaned over backwards to prove his reliability to the election-funding community and his rejection of “populism” and any substantial action that might meet the needs of the general population.


The class war forces have been steadily encouraged by Obama, who makes concessions beforehand, thereby conceding the justice of the 1 percent’s claims and weakening any negotiating position on behalf of the 99 percent. Obama agreed that “entitlements” (those to the 99 percent) are excessive and need cutting, and he appointed a National Commission on Fiscal Responsibility and Reform to study the problem, headed by two individuals known to favor “reform” (Erskine Bowles and Alan Simpson). Their personal report (not approved by the entire commission) called, predictably, for Social Security and Medicare cutbacks and tax cuts along Bush lines. Obama’s two year wage freeze for federal government employees fed well into the class warriors campaign of denigration of  government (civil, not Pentagon-CIA). Obama signed a Budget Control Act in August 2011 that provided for substantial expenditure cuts in exchange for the Republicans kindly allowing a federal debt- ceiling increase that prevented a federal government default.


The Obama years have seen another $4 trillion added to the debt, but this was not because of any direction of resources toward the general public. No, it was the result of the fall-off of revenue from the recession, new unavoidable recession-based outlays, and the impact of the still-operative Bush tax cuts and continued huge military outlays.


The right has gotten more powerful and aggressive from the Reagan years to the era of John Boehner and Paul Ryan and the use of the budget deficit to defund “the beast” (the civil budget) has become bolder.  Even before Reagan, in 1978, Alan Greenspan was claiming that the major objective of  tax cut programs was “to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending.” Reagan made the same point and George W.  Bush spoke of a “fiscal straightjacket” that his tax cuts would provide. Of course they didn’t and the national debt grew by some $4 trillion during his term in office. But this was still “responsible” deficit-making, with its huge bias toward tax cuts for top earners (“my base”) and the military-industrial complex.


But the Republicans are still not satisfied. They have gotten away with the use of the debt-limit blackmail threat to shrink the beast and protect the interests of their tiny base. But they want more and the Paul Ryan plan would provide that with massive cuts in Medicare, Medicaid, food aid, public infrastructure investments, and $4.6 trillion in tax cuts, disproportionately benefiting the wealthy. Ryan claims that his budget addresses the “deficit” issue, but all his specific budget proposals add up to a larger deficit—the further revenues to balance the budget are still to be named. So the idea that this right-wing budget is addressed to debt-deficit problems is a complete fraud—it is a major class war attack, barely concealed.


We may ask how Ryan can get away with such a fraud and how he and Boehner and their colleagues can escape unrelenting attacks from the mainstream media for lying and aggressive and inhumane class warfare against the 99 percent? The answer must lie in the growth in power of the 1 percent, their domination of the flow of information (and indignation) that can allow and facilitate a use of the threat of a growing debt as a counter-revolutionary weapon. This is a sick democracy with a power-accommodating media, and a failing state.  The public is kept ignorant and confused and Ryan and Boehner are impudent. As Ralph Waldo Emerson said many years ago, “The imbecility of men is always inviting the impudence of power.”



Edward S. Herman is an economist, media critic, and author of numerous articles and books. His latest is The Politics of Genocide (with David Peterson).