R. Christopher Whalen

This is yet another recent and excellent book about politics and finance, in this case focusing on the American economy since the Civil War.

Whalen shows in a detailed way how the the role of the American government has changed, with a basic statistic being the US government taking about a 10% share of GDP pre 1933 to a 50%+ share of GDP today, and he asks how it happened.

Its an interesting question, and he illustrates the way in which America has moved from what Isaiah Berlin called the negative freedom of being able to fulfill projects without coercion to the positive freedom of the New Deal with for example Franklin Delano Roosevelt's declaration in 1941 of the right to "Freedom from want" and "Freedom from fear". Whalen rightly points out that these can be taken as statements of dependency which can only be realized in the context of a paternalistic welfare state.

He shows that "Freedom from want and fear " has been a vastly expensive commitment for the US government along with the growing cost of US involvement in global conflicts. In the international context he sees key moments as being the post WW1 non-repayment of US war loans to Great Britain and France and post WW2, the cost of the Marshall Plan in rebuilding Europe. [He doesn't consider what would have happened if the US had not been involved in these two conflicts. It is generally acknowledged that it was US intervention that ensured Allied victory and avoided the totalitarian domination of Europe which would surely have been economically prejudicial to the US].

One of the most interesting features of the book is the way in which he shows that the US "Golden Age" of the 1950's and 1960's was actually a very unusual period which was in no way the American norm. The wartime destruction of European and Asian competitors, the preeminence of the dollar, US credit and the refinement of mass production gave the US a free run in the world economy, with tremendous economic growth managing to pay for the increased scale of government.

He records how this period was falsely presented by Keynesian's as proof that deficit financing generated a virtuous circle of self financing growth, and that this illusion along with the explosive post-war increase in consumer credit laid the foundations for a dangerous permanent deficit while US international economic competitors reestablished their economies from the 1970's onwards (particularly Germany and Japan, and eventually China).

The book is symptomatic of a new opinion that deficit financing only works 1) in a deep economic crisis such as the US of the 1930's, 2) to support wars of national survival, 3) to rebuild in times of great economic opportunity, e.g. post war reconstruction.

He sees a basic error in regarding deficit financing as an economic cure all that helps avoid difficult political decisions and he quotes Jerry Flum, CEO of the Credit Risk Monitor, saying, "Every dollar of debt moves a future purchase into the present. As credit grows we spend more of it now. So if you look at debt versus gross domestic product, we are already at record levels. We can also look at incremental debt versus incremental gross domestic product. In the 1950's it took $1.50 in debt to produce $1 of GDP. Today it takes more than $6 in debt to produce $1 of GDP, so we are approaching the end of the game."

Finally the author is optimistic about the outcome but its interesting to see how the story plays out.… (plus d'informations)