Starving the Beast

So why did President Reagan and both Bushes follow a "borrow and spend" fiscal policy instead of making sure the national expenditures were paid for, as they could easily have done?

Because they didn't want to balance the budget. They wanted to follow the policy of "starving the beast."

Don't take my word for it - read the analysis by Bruce Bartlett, writing for Forbes.com.

Here is how economist Paul Krugman describes the scheme in the Pittsburg Post-Gazette.

Although the Republican Party has complained about deficit spending ever since the Great Depression, this was never previously a big deal with the GOP, with their predecessors the Whig Party, or with their original predecessors, the Federalist Party. In fact, President Washington, on advice of his Treasury Secretary Alexander Hamilton, began his administration with an enormous deficit.

This came about when the Federal Government under the new constitution purchased at face value revolutionary war bonds issued by the states. This represented an enormous windfall for speculators who had purchased the bonds from original investors at pennies on the dollar.

The rule: millions to subsidize financial speculators, but not one cent for ordinary people.

This continues to be the policy of the GOP.

What offended Republicans about the New Deal was not the deficit financing, but to whose benefit the money was spent.

Democrats, on the other hand, have from the time of the Anti-Federalists and especially from the Andrew Jackson administration, opposed deficit financing. The reasons:
1. Government borrowing drives up the cost of credit for ordinary people;
2. Paying off government debt takes money from the pockets of the poor and transfers it to the rich;
3. Driving up the cost of money increases the cost of American products and reduces exports;
4. Government borrowing from foreign lenders makes us vulnerable to foreign interests;
5. Etc.

Only in truly extraordinary circumstances do Democrats support extensive deficit financing: the Great Depression and World War II are the clearest examples.

Six years ago, Paul Krugman exposed the whole Starve the Beast bait and switch scam.

Now they have extended the scam from the Federal level to the State level by making it impossible for Washington to provide enough stimulus money to counteract the reduction in state expenditures resulting from state constitution requirements to balance the budget. Earlier, Krugman described the dilemma facing the states and the implications for the national economy in his article Fifty Herbert Hoovers. The article is worth reading again.