Back to the Future

Dear Reader,

John Fund, a top editor on the Wall Street Journal's editorial page, sent me this thoughtful column written by Pulitzer-prize winning journalist Walter Lippman, dateline May 16, 1939, written when President Franklin D. Roosevelt was in office.

I urge you to read Lippman's column.

In it you might see some strikingly prescient insights, portents and curious parallels to the Super-Size Me spending plans now being trucked out in Washington, D.C., plans that in the balance represent a colossal government spending bubble never before witnessed in the history of this country.

Lippman, a political commentator and author of several books, wrote the column "Today and Tomorrow," in which he continuously questioned government policy.

Lippman also coined the term "cold war" in 1947, in a book with that title, and engaged in a high-stakes, public fight with Lyndon Johnson over his criticism of the president's handling of the Vietnam War.  

Even today, Lippman's column delivers cogent insights into the government personalities pulling the levers behind the scenes.

Today taxpayers are contending with an intolerable, moral astigmatism in government when it comes to the use of taxpayer money.

The government wants to now foist on the backs of families, entrepreneurs and companies the largest budget in American history, one that will support a government bureaucracy that has sharply grown like kudzu, because the government knows better than you what's good for you and it knows better than you do how to use your tax dollars.

Deficit spending is off the rails, pay go is pay gone, and a Congressional pork wagon is running over taxpayers, as the Journal editorial page has noted, all in the name of getting the economy out of its national nervous breakdown.

Some $3.6 bn for the budget is now being debated, after more than $10 tn has already been blown out the back door to bail out the economy, all done by a Treasury that is using off-balance sheet borrowing to get funds from the Federal Reserve, a move that neatly bypasses Congressional approval.

But to paraphrase former Treasury Secretary Henry Paulson's favorite term, when it comes to chaotic budget spending, "bazooka"-economics is really an empty pistol, one that in reality only ends up popping off empty populist blanks.

Because deficit spending could leave the economy in an invertebrate state for some time to come. Outsized, Keynesian deficits do suppress private investment by driving up interest rates.

And the very same invisible hand that economist John Maynard Keynes believed in, the one he says guides economies in a natural cycle, now will crack you a good one with future tax hikes and inflation to pay for this ocean liner of debt.

The lack of buyers in the bond markets' five-year Treasury auction yesterday was a potential thumbs down on the massive spending, a harbinger of things to come as some $2.5 tn in Treasury issuances are expected this year alone.

But Congressional Democrats aver the deficit will be cut in half by the end of the President's first term, despite the budget expenditures of $3.6 tn in the next fiscal year, thanks to rosy GDP growth rates of 3% or more in coming years, according to their analysis based on the government's computer models.

Proving that artificial intelligence is no match for natural foolishness.

Meanwhile, true Medicare, tax and Social Security reform remain submerged in Congress, amidst the worst spending bubble of all.

So in reading Lippman's column, both John Fund and I wonder, quoting tongue in cheek Yogi Berra, the malaprop prone former Yankee catcher:

"Is this déjà vu all over again?

Tell me after reading it, what do you think?

Sincerely, EMac

"The Conflict Within the New Deal"

By Walter Lippmann, May 16, 1939

The New York Herald Tribune, "Today and Tomorrow."

After two months of pulling and haling inside the Administration, the President has disowned the Treasury's program for tax reform, and in the Department of Commerce General Wood has resigned.

This seems to end the most recent attempt to bring about a working arrangement between corporate business and the New Deal. Yet it is a curious thing that though these efforts always fail, they are always renewed.

The record of five years shows that the issue is never settled, that while the New Deal never actually succeeds in making peace with the business community, at intervals the New Deal feels that it must open peace negotiations.

The play has now been performed so many times that the audience ought to know the scenario by heart. For it is only the actors who change. The olive branch is extended to representative business men by some one reputed to be the keeper of the President's conscience.

Once, if I remember correctly, the name of the olive branch bearer was Hugh Johnson, then it was Joseph P. Kennedy, then it was Hopkins, Hanes, Morgenthau.

The New Deal conciliators always emerge from the general region occupied by the Treasury, the Department of Commerce, or one of the independent agencies, closely in contact with conciliatory business men.

Then just as the conciliatory business men are about to take the olive branch from the conciliatory New Dealers, some one makes a speech or passes a resolution which inflames some one of President's most cherished complexes.

At that point other New Dealers, based, it is supposed, on the general area occupied by the Department of the Interior and its personal affiliates, go into action privately. The conciliators then join the army of those who went forth to battle but always fell.

What causes the play to be performed so often? There are some who say that it is done to mystify the public.

But my belief is that there is a more genuine reason for this continual maneuvering between a settled peace and open war, these repeated essays in reconciliation followed by threats that are never carried out resolutely.

The reason is that there are in fact two main tendencies inside the new Deal, and that the President is never able finally to make his choice for the one or the other.

Between the conciliatory and the irreconcilable New Dealers the crucial difference is, I think, that the one group is interested primarily in social reform and the other is interested primarily in the control of the economic system.

Thus the reformers wish to provide relief, to practice conservation, to establish social security, and by law to impose social standards upon business and finance.

But in order to do these things, they know that there must be money available, and so quite sincerely they would like to promote recovery, not only for its own sake, but in order to finance the reforms. When they are convinced that a certain tax is "deterrent" to enterprise and investment, they would like to modify it.

The radicals, on the other hand, are not primarily interested in the reforms. They are primarily interested in reducing the power of corporate business men, and the heart of their programs is not in the good works or the public works of the New Deal; not in relief, social security, conservation and the orderly development of natural resources.

The heart of the radical program is precisely those deterrent taxes and those restrictive regulations which limit private initiative. Though they do not often avow it publicly, the radicals are opposed to a large revival of private initiative because a revival of initiative would mean a restoration of control.

It is not true, I think, that they oppose recovery as such, or that they wish the system of private enterprise to break down.

But it is true that they would rather not have recovery if the revival of private initiative means a resumption of private control in the management of corporate business.

Among the radical New Dealers the essence of the New Deal is the reduction of private corporate control by collective bargaining and labor legislation on the one side, and by restrictive, competitive and deterrent government action on the other side.

Thus they cling to taxes which do not come anywhere near yielding enough revenue to balance the budget because those particular taxes paralyze the financial power of the rich and well-to-do.

The difference between a reformer like Secretary Morgenthau and his opponents within the Administration is at bottom that Mr. Morgenthau thinks a deterrent tax is a bad tax whereas they think it is a good tax. It depends on what you really want.

If you want to deter private initiative in industry because you are hoping to reduce the private control of industry, then a deterrent tax is just the sort of tax you want.

This is the issue between the reformers and the radicals. Both believe in spending.

But the reformers wish to spend, one, because they wish to create social services and public works; two because they wish to prime the pump for recovery.

The radicals wish to spend, one, because public spending increases the power of the government as compared with private business; two because it makes recovery and prosperity depend on government rather than private initiative; three, because it substitutes public investment of a proportion of the national savings for private investment and, four, because the money is spent for desirable social services.

The reformers regard the spending as an instrument of recovery and a means for improving the condition of the people. The radicals regard the spending as a substitute for recovery and as a means of altering the balance of social power.

That is why the recent controversy over "tax deterrents" has been so significant.

It symbolizes the issue that divides the New Deal. It is primarily a symbolic issue.

For no one knows whether the Treasury's tax reforms will actually promote a substantial recovery, given the general state of the world at the present time.

But what is known is that if the President had wholeheartedly accepted that program, it would have been a pledge that the reformers rather than the radicals were predominant in the New Deal.

That pledge, whatever its immediate economic effects, would have gone a long way toward an honorable reconciliation between business and the New Deal, a reconciliation based on the acceptance by business of social reform, and by the Administration an acceptance of private initiative and private control in the management of business.

In the end either this Administration or its successor will have to make just such a reconciliation.

The reforms will not be repealed; on the contrary they will be developed further. And the private control of industry, though it can be modified by law, cannot be replaced. For there is no substitute for it in any scheme of things that the American people are even remotely prepared to consider.