A brief history of deficit hysteria

2400 B.C.: The king of Lagash, part of ancient Sumerian civilization in what is now Iraq, declares a general cancellation of debts. Peasants have come under great economic pressure with the rise of agriculturally based empires. It is the peasants who panic and the monarch who gives them relief, showing that debt hasn’t yet become the source of an indelible moral stain, unlike our own time. Debt happens and if it becomes too heavy, the government simply cancels it.

Regular forgiveness becomes the pattern in the ancient near east. In 1761 B.C., King Hammurabi of Babylon cancels debts, so that “the strong might not oppress the weak.” Over 1,000 years later, the Jubilee law of the Hebrew Bible joins this tradition of routine debt cancellations. The Egyptian Rosetta Stone of 196 B.C. also annuls debts. These amount to ancient forms of bankruptcy law except that they are unaccompanied by a sense of moral disgust about debt. Some time during the next several thousand years (Imperial Rome, Middle Ages, Renaissance, etc.): By some long, obscure process, debt becomes a sign of moral turpitude. Geld (money) equals guilt, versus the attitude of the ancient near east. This sense falls unevenly on the poor versus the rich. (Also, in my experience, btw, on leftists, who feel agonizingly guilt-ridden by debt.) Yet nations, at this point, aren’t comparably humiliated by the debt experience. So: 1557-1596: Spain cheerfully declares bankruptcy four times, during its period of heady conquest. In 1692, Britain runs its first deficit, to finance a war, and remains in debt ever since, 323 years and counting. In 1694, it creates the Bank of England to make loans to the king so he can finance wars worry-free. In 1789, the U.S. goes into debt and stays there until now. Sometimes public debt rises, with wars and deficits, then it falls and rises again. No one panics. 1936: Economist John Maynard Keynes makes the remarkable suggestion that governments should incur debt not only to finance wars but to ensure general prosperity in harsh economic times. Other economists are unsettled. 1945-mid 1970s: Following Keynes’ advice, Western nations undergo three decades of unprecedented growth, prosperity and shrinking inequality. Year indeterminate but sometime in the last 40: Public debt is demonized too: balanced budgets and hatred of deficits become items of faith unchallengeable by anyone running for office. 1980s: Ronald Reagan deplores deficits yet simultaneously follows Keynes’ advice, building up U.S. military through debt. Global bureaucracies such as IMF, World Bank terrorize developing nations in order to force them to balance budgets, then move on to victimize Western nations like Greece in the same way. In crises like 2008, deficit hysteria is momentarily shelved but never discarded. 1988: Mulroney Tories bring the question of deficits into Canadian election. Reporters fall all over themselves asking befuddled candidates: how are you going to pay for that — a question rarely, if ever, asked in previous elections. 1993: Liberals Paul Martin and Jean Chrétien decide to freak out because a junior editorial writer at Wall Street Journal said Canada is becoming a third world country due to deficits. They slash social programs, fulfilling neo-con agenda. 2003: Martin finally gets his wish, is PM, tries to reverse course, implement national child care, Kelowna accord etc., but finds it’s too late. The die is cast and he cast it. In 2006, Stephen Harper takes over, finding his way well paved. 2015: NDP Leader Thomas Mulcair denounces deficits, promises a balanced budget, confusing most NDP candidates who nevertheless manage to fall in line. Mulcair is following other “left” parties, like UK Labour under Tony Blair, who became admirers of Margaret Thatcher in order to win power. Unexpectedly, Liberal Leader Justin Trudeau declares he will run deficits, in classical Keynesian fashion, in order to strengthen economy. Canadian voters shake heads in puzzlement. Just the other day: Trudeau then justifies Paul Martin’s deficit hysteria and program slashing of the 1990s. It’s a classic case of Freudian Oedipal remorse, as in, “I’m sorry I killed our father” — which in this case is a really complicated image. Proving, at least, that anxiety about debt/deficits is far from resolved.

(With special thanks to work by David Graeber and Michael Hudson.)

In the 1980s, global bureaucracies such as IMF terrorize developing nations in order to force them to balance budgets, then move on to victimize western nations in the same way