In 1929, when the stock market crashed, a long sustained depression followed. Since then economists have learned of the need to deficit spend during times of economic crisis or cyclical recession to avoid a depression. In 1987 when the stock market crashed, Ronald Reagan enacted deficit spending (building government debt to keep the flow of money in the economy). Most leading economists believe deficit spending during periods of deep recession is the key to avoiding a long economic depression.
In 1992, a Henny-Penny businessman named Ross Perot ran for president under the mass-hysteria banner that we must stop spending or we’ll leave our grandkids with enormous debt. Perot understood business, but not economic policy. Managing the largest economy in the world is not the same as running a business or managing your household finances. You do not need a doctorate in macroeconomics to balance your checkbook.
Reagan and George H.W. Bush used deficit spending to keep us out of a depression following the crash of 1987. Reagan spent heavily on the defense industry. We ran up debt until the cycle up-turned and the economy recovered. By 1999, we had wiped out our debt and had amassed a budget surplus. Perot’s grandchildren did not inherit the Reagan/Bush debts of 1992. The ceiling did not fall as Perot naively predicted.
In 2008, under George W. Bush the stock market crashed again. Bush immediately began deficit spending. Obama inherited an economy in freefall and has continued deficit spending to avoid a depression. Once the cycle changes and we see sustained recovery we can make necessary adjustments to the tax codes, ease spending, and wipe out the debt. Deficit spending at times of economic crisis is not a Democrat or Republican philosophy. It’s what the leading economists believe is how we avoid a long economic depression.
Now we have a new breed of Henny-Penny businessmen, political pundits, and presidential candidates clamoring about deficit spending and how you don’t run a business or household that way. We hear about our grandchildren inheriting our debts. In 1992 a substantial number of low-information voters foolishly lined up behind Perot. I wonder how many voters will fall for the Henny-Penny (Chicken Little) folk tale this year.