The virtue of deficit spending

It surely meets the definition of dichotomy, which is what happens when two parts of a whole somehow manage never to meet.

We begin with a troubled domestic and global economy. We can agree on that. The disconnection occurs when we consider what to do about it.

We have fine, responsible people saying in compelling fashion that the way to deal with this dire circumstance is for governments to get austere in their spending and stop compiling single-digit trillions in deficits and multi-digit trillions in debt.

They say this profligacy defers such massive mortgages to the next generations, and that we are imperiling the chances for our innocent children and grandchildren to enjoy economic liberty and a sound quality of life. They say, quite rightly, that deficits cannot be sustained indefinitely because there is a day of reckoning.

This is the prevailing view in America at present. Everywhere I go, people tell me they think we're spending ourselves down the tubes for no discernible advantage.

But then you have John Maynard Keynes, late British economist, and Paul Krugman, current American economist and Nobelist, and even President Obama. They believe there are times when governmental belt-loosening is the wiser and more virtuous course.

Sometimes, this theory goes, government must spend money it doesn't have because the private business economy is not growing sufficiently on its own to provide a minimally comfortable lifestyle and fuel the kind of expansion necessary for an economy's viability.

At such times, they believe, a government that can borrow money -- because lenders trust its ability to service that debt even as the debt piles higher and higher -- is obliged to keep borrowing and spending.

This is the thinking: It's better for a government to borrow when it has the credit rating to do so -- on the hope of artificially propping up the private economy until natural growth can recover and bring the government deficit down -- than to play Nero's fiddle and let your economy collapse.

The difference of opinion sounds insurmountable. But it's less a matter of a great philosophical divide than of timing, which is to say touch and feel.

In the late 1930s in America, after signs of economic recovery, Franklin Roosevelt decided to trim federal spending. The economy promptly went into a retraction of 3 to 4 percent.

He didn't get the concept wrong. He got the timing wrong.

That's the relevant issue today.

The bank bailout, the stimulus -- policies of both Obama and his Republican predecessor -- were Keynesian in concept because the collapse was so precipitous and ominous that we had no choice.

The question now is whether we're yet out of the woods, and, since we can't be sure from the mixed signals, whether we ought to keep borrowing, keep spending, keep stimulating, keep propping up, so long as the Chinese and others will extend us credit.

Obama believes we should spend -- not as much as before, but for extended unemployment compensation and to keep in place tax credits for home buyers that have saved the real estate industry.

Germany, the largest European Union economy, could keep spending, but its chancellor, Angela Merkel, is of that first school of thought. She advocates spending cuts and deficit control.

It makes her sound middle American. But there's a big difference. She is so serious about deficit reduction that she talks, too, of tax increases.

We don't want any of that in America. Many of us cling still to the Reaganesque thought that you can get a deficit down by cutting taxes.

The wisdom of Keynesian government spending has been shown, as in our Great Depression. The wisdom of government spending cuts also has been shown, as in the Clinton administration's gradual reductions -- in the rate of spending increase, at least -- in the prosperous 1990s.

The wisdom of cutting taxes on the premise that it will lower your government deficit -- that remains undemonstrated.

John Brummett is an award-winning columnist for the Arkansas News Bureau in Little Rock. His e-mail address is jbrummett@arkansasnews.com.