Myth: “Modern deficit spending started with the New Deal and Keynesian economics.”
The federal government has frequently borrowed to fill budget holes during severe downturns. It did so after several recessions and all three major depressions, beginning in 1837, 1893, and 1929. President Franklin Roosevelt cut “normal” federal spending—including federal civilian and military salaries—at the outset of his presidency. Like President Hoover, and unlike current federal leaders, Roosevelt tried to balance the budget for “normal” spending and accounted separately for relief and public works programs that would end when national income recovered. Roosevelt vetoed a record 665 bills in order to enforce spending discipline.
President Roosevelt thought of Keynes as an impractical theorist. Keynes himself envisioned that debt incurred during severe downturns would be reduced after economic recovery. After World War II most economists–including conservatives such as Milton Friedman–recognized that the federal government would inevitably borrow during a downturn as tax revenues fell. Paul Douglas, a respected economist who was also a liberal US senator, considered balanced budgets during periods of normal growth to be both good economics and good moral stewardship of the nation’s future. President Harry Truman, a staunch defender of the New Deal, embraced the budget principle of “pay as you go.”