Presidential Pleasure Principles

Associated Press President Lyndon Johnson signed Medicare into law in 1965. At his side was former President Harry Truman, who had proposed the idea.

John Maynard Keynes once remarked that statesmen, for all their surface practicality, were generally slaves to some defunct economist. He became the greatest slavemaster of them all.

Before the end of World War II, American presidents and their Treasury secretaries generally delivered budget surpluses except in times of war or economic depression. The discipline of the international gold standard and an unfavorable balance of payments required nothing less. The public debt grew gradually but did so apace with the growth of a wealthy and expanding nation.

World War I reversed the balance of payments situation, making the U.S. a net creditor. During the prosperous Roaring Twenties Presidents Harding and Coolidge actually reduced the national debt by about one-third. The Great Depression of the 1930s, however, all but required sharply unbalanced budgets, whether from Herbert Hoover or Franklin Roosevelt.

John Maynard Keynes and Henry Morgenthau, right, at the Bretton Woods economic conference in 1944.

The economic dominance of the United States at least permitted monetary tinkering (including a 60 percent devaluation of the dollar in terms of gold) that would have been severe in most other nations. World War II forced huge deficit spending, financed almost entirely by bond issues sold to American citizens and corporations. Its end brought victory and unparalleled prosperity. By then, Keynes was achieving a position of dominance among academic economists, increasing numbers of whom were liberal in their politics and culturally prone to reject the pleasure/pain principle that had dominated their profession.

Politicians, always eager to finance pleasure, welcomed the new dispensation and were enabled by the professionals who staffed the new Council of Economic Advisers and other federal agencies. With some variation, but largely regardless of party, presidents since Harry Truman have tended toward rhetorical budget balancing while being downright heedless of debt.

Democrats still genuflected to Keynes. Lyndon Johnson, motivated by a blend of ego and social consciousness, gave us an outsize Great Society. Even Nixon, bowing to re-election necessity, proclaimed us all Keynesians while attempting to control the inflation he unleashed with the snake oil of price controls.

Republicans soon developed a “supply-side” rationale inspired by the tax-cutting of Coolidge and Treasury Secretary Andrew Mellon. Under Reagan, deficits increased sharply but seemed to bring back prosperity, moving Dick Cheney to remark that they did not matter. In a curious reversal of roles, Bill Clinton treaded carefully after the failure of his national health plan, but George W. Bush spent freely. Barack Obama appears to most people (if not to Paul Krugman) to have brought back Keynesian economics with a vengeance.

Unfortunately, the world of the 1930s and 1940s -- in which the United States was a creditor nation with strong favorable balances of payments and trade and seemingly unlimited natural resources -- no longer exists. Whatever happens with the present discussions regarding the budget, the bond vigilantes loom over the horizon, and pain/pleasure economics is on the verge of a comeback.

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