Hey Pen-L hope some of you folks will sign on to this. Elaine Bernard ----------------------------Original message---------------------------- April 10, 1996 From: Frank Riessman Attached is the latest statement that emerged from the Social Policy Forum on the Balanced Budget. If you would like to add your name to this list, please let us know. Your comments are also welcome. List of supporters Elaine Bernard Norman Birnbaum Roscoe Brown Timothy Canova Sheila Collins Noam Chomsky Jeff Faux Herb Gans Audrey Gartner Helen Lachs Ginsburg Philip L. Harvey Andrew Humm David Dyssegaard Kallick Lowell S. Levin Al Marcus Robert McIntyre Roy Metcalf S.M. Miller Janice Nittoli Art Pearl Dolores Perin Frank Riessman Sumner Rosen Robert Schwartz Lynn Turgeon William Vickrey June Zaccone THE "BALANCED BUDGET" MOVEMENT IS A THREAT TO OUR ECONOMY Our Democratic President and Republican Congress have both embraced the goal of "balancing the budget" on the assumption that government spending is out of control and that reducing the deficit will lead to long-term prosperity. Both of these assumptions are not supported by any evidence in United States history. Instead of putting forth a sound program for addressing needs--like rebuilding our infrastructure--we are called upon by government to absorb the pain of budget cuts as a sacrifice that will yield a more stable economy for generations to come. The opposite is true. Just as families and individuals borrow to invest in their futures--to pay for education, a home mortgage, a car, or starting a new business--our government has borrowed in the past to invest in the future of our people. Jefferson's Louisiana Purchase created a big debt for a young nation but also doubled the size of our country. When collective security--and the security of the world--was threatened in World War II, we borrowed at unparalled levels to pay for the war effort. The result was not just the defeat of fascism, but emergence from the Great Depression. Balancing the Budget is the Wrong Strategy 1) Every sustained period of balancing the budget and reducing the national debt** has been followed by an economic depression in the U.S. (The last time was in 1929. It happened five times before that in 1819, 1837, 1857, 1873, and 1893.) 2) In 1937, FDR, at the urging of Treasury Secretary Morgenthau, decided that there was no more need for pump-priming and decided to move toward balancing the budget. This sharp change from deficit to surplus financing had dire repercussions that resulted in a severe contraction of business. Production fell below the 1930 level, unemployment jumped by three million within the year, and private investment dropped by nearly one half. (This was truly a depression within a depression, as unemployment rose from 14 percent in 1937 to 19 percent in 1938.) 3) There has been chronic deficit spending since World War II, and this may have prevented yet another major depression--the longest depression-free period in our history. The nine recessions since World War II have all followed reductions in the deficit relative to Gross Domestic Product. The economic growth of the 1980's, moreover, came after increases in the deficit. 4) The current levels of debt are not as high as many would have us believe. Viewed realistically as a proportion of the Gross Domestic Product--rather than as a misleading absolute number--the total debt is currently 71% of GDP, a figure that has been roughly unchanged for the past three years. (The proportion of debt held by the public is 51% of GDP. The other 20% is owed to other government agencies such as the Social Security Administration.) The nation's debt increased approximately sixfold from 1940 to 1946, and it was larger than the GDP in 1945, 1946, and 1947. 5) Many say: I balance my checkbook, why can't the federal government balance its own? But few know the unique way the federal government does its accounting: It fails to distinguish investment or the acquisition of capital assets from current expenditures. By federal accounting methods, most major businesses, households and state and local governments would be "in deficit." To "balance our checkbooks," we would have to give up much business investment and stop all borrowing to buy a house or car or send our children to college. 6) Mandating a balanced budget makes it impossible for the government to spend the funds necessary in times of recession when human needs--for everything from support payments to public employment--increase markedly. If the government is bound by statute or constitutional amendment to have no deficit in such times, the situation will be worsened by even more cuts or tax increases. 7) The advocacy for balancing the budget is really directed toward a reordering of government priorities. One goal of those calling for a balanced budget is not the attainment of fiscal responsibility, but the dismantling of government social programs. We, the undersigned, are calling the "balanced budget" movement what it is--economically disastrous and socially calamitous. We call upon Congress and the President to abandon this goal and to invest the funds necessary to make America a more livable society by focusing on the creation of decent and secure jobs, a livable income, guarantee of health care, affordable housing and other pressing human needs. **The conventionally measured deficit is the amount of government outlays that exceed revenues during the year, hence the amount that has to be borrowed. The debt is the accumulation of all that has been borrowed, less what has been paid off. David Dyssegaard Kallick Editor, Social Policy 270 Lafayette Street Suite 903 New York, NY 10012 212/274-1139 fax 212/431-3251 e-mail: [EMAIL PROTECTED] WWW: http://www.socialpolicy.org