DKuehn on FDR, in 2013

From Hoover on Keynes, in 1936:

The New Deal is kind of an amorphous blob of a lot of different ideas and programs. There were some very good public investments. But there was also a lot of bad tinkering and price fixing. Much of that got struck down. Overall it wasn't particularly impressive as fiscal policy. The general sense of economists is that fiscal policy didn't really get much of a chance until WWII. Monetary policy made a difference earlier in the thirties. On the margin some spending helped people. There is an interesting literature on the impact that Roosevelt had on expectations. But little was done in the way of proper macroeconomic policy.

A lot of words, there. Let me show you in one picture what FDR did:

FDR was President from 1933 to 1945

Not so amorphous after all, is it.

18 Years, Same Story

Something I wrote back in 1993:

THE BURDEN

As long as we can afford our debt, it is not a problem. It is when our ability to afford debt becomes strained that problems appear.

While others have been concentrating on the debt, now a problem, I have been thinking about what it means to 'afford' it. It means we can make the payments. It means that one's income is sufficient, in comparison to one's debt. More generally, it means that the income of the nation is sufficient, relative to the debt of the nation. The relationship between debt and income is very important.

In order to be available as income, money has to circulate. Our income is, by definition, circulating money. The relationship between debt and money in circulation is therefore very important.

Government statistics make it possible to examine the relationship between debt and money in circulation. These statistics show that in 1950, there was nearly $3.75 of debt for every dollar of money in circulation. Twenty years later, the debt had more than doubled. The figures for 1970 show $7.60 of debt for every dollar in circulation. After another twenty years, the debt had doubled again. In 1990, the figures show over $16.42 of debt, for each circulating dollar.

Compared to the amount of money in circulation, the outstanding debt in America keeps increasing, doubling every twenty years. No wonder our ability to afford our debt has been impaired. No wonder debt has become a problem!

Can this be a fluke? I don't think so.

The continuous growth of debt is not a random event and not a spontaneous occurrence. The growth of debt is a by-product of economic policy. Our economic policy is a guiding force which makes things happen in our economy. I believe the growth of debt is a side effect of policy, which policy-makers may simply have failed to notice.

An unobserved machine is at work in the American economy. It is a debt machine. The machine now creates 15 or 20 dollars worth of new debt each time the quantity of money in circulation increases by a dollar...

I'm still telling the same story today. Think it's interesting, though, that in 1993 I was saying there's 15 to 20 dollars of debt per dollar of M1 money... and by the crisis of 2008, 30 to 35 dollars of debt per dollar of M1 money.

Here's my DPD graph from 18 years ago: