• Note the source -- the Christian Science Monitor is usually considered a reliable newspaper
  
• Data compiled by Professor Frederick Thayer of George Washington University

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“A Link Between Debt Reductions And Depressions”

“ My thanks for the opinion-page article, “Too Many Goods, Too Few Buyers - A Repeat of 1929?”, Feb. 2, [CSM], and the author’s sensible warning to today’s, eager budget-cutters.

An equally interesting set of data was recently released by Prof. Frederick Thayer of George Washington University. He linked the American historical sequence that begins with budget-balancing and ends with depressions. Among his findings of past debt reductions:

1. From 1817 to 1821, the national debt was reduced by 29 percent to $90 million, and our first major depression began in 1819;
2. From 1823 to 1836, the national debt was reduced by 99.7 percent to $38,000, and a major depression began in 1837;
3. From 1852 to 1857, the national debt was reduced by 59 percent to $28.7 million and was followed by a major depression in 1857;
4. From 1867 to 1873, the national debt was lowered by 27 percent to $2.2 billion, and a major depression began in 1873;
5. From 1880 to 1893, the national debt was reduced by 57 percent to $I billion and was followed by a major depression in 1893; and ?
6. From 1920 to 1930, the national debt was reduced by 36 percent to $16.2 billion; our sixth major crisis - the Great Depression - began in 1929.

“The consistent, historical evidence indicates that deficits never cause depressions, while crusades to reduce the national debt are, always, followed by depressions. The author, poignantly, reminds us that the legitimate needs, of all members of society, justify special programs. It is helpful, if we remember that these programs and their costs, also, are integral to the health of our nation’s economic well-being."

DEBT REDUCTION CAUSES DEPRESSIONS?

Found at <<http://www.kamron.com/debt_reduction_causes_depression.htm>>

1) This is being presented here as because of the historical data it shows.

2) We have not checked the accuracy of this report and have made no decisions on the significance and importance of the information except as written below.

3) Perhaps the "budget balancing" simply means the government is cutting back on expenditures to reduce its debt. That would logically lead to a reduction in economic activity, which if carried on for some time could naturally lead to a depression.

4) One might naturally draw the perhaps unwarranted conclusions from the chart that (1) long term government budget balancing will always cause a depression, and (2) long term government spending will always cause inflation.

5) Such conclusions, we believe, would show shallow thinking if other factors were not considered at the same time. That shallow thinking might lead to rash economic policies that would be harmful.

6) Perhaps the data is simply showing that the the economy is sensitive to government spending and that government spending should be balanced in an effort to keep the economy balanced. That type of thinking would probably be good for the economy and the country. Even without any data, that balance seems like a logical policy. Would anyone argue against such a policy of balanced government spending?

An argument against Balanced Budgets

1) Much has been written about (a) the need for a balanced government budget and (b) a refrain from deficit spending. Note a "balanced government budget" is not the same as the "balanced government spending" mentioned directly above. While hardly anyone would argue against balanced government spending, it is fairly easy to argue that "deficit spending" can be a good thing if the deficits lead to worthwhile infrastructure projects that increase the wealth of the country.

2) Certainly it is worthwhile for the government to spend any amount of money if that spending leads to needed roads, airports, dams, dikes, waterways, agricultural research, education, internal peace, sewage treatment, conservation of our resources and all those other things that are hallmarks of a great nation.

3) Arguments are often made that the government should operate on a balanced budget just like all families operate on a balanced budget. That is, in my opinion, nonsense. Most successful families wisely go into debt to buy (invest in) their first house and thus operate on an unbalanced budget for 20 or more years as they build equity and wealth. Similarly -- the smartest families go into debt (invest in) to start businesses and provide for a good education for their children, thus unbalancing their budgets for some time. As long as the debt is aimed at good investments, it is not only wise -- but prudent and necessary.

4) It is just as wise for the government to spend more than it takes in as long as the deficit is for worthwhile projects.

5) In other words, "balanced spending" and a "balanced budget" are not the same thing. A "balanced spending" is generally good while a "balanced budget" can be stifling.

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