Socialists for Balanced Budgets

DeLong recommends Christopher Hayes's piece on the Pain Caucus which is provocatively titled "Are Depressions Necessary?"

Hayes singles out Robert Samuelson* as a particularly vocal member of the puritanical "No Pain No Gain" squad whereas Krugman is singled out for praise as a prescient voice of reason.

But for Samuelson, inflation is enemy number one, so much so that wringing it out of a system makes recessions look not so bad. "Recessions also have often-overlooked benefits," he wrote in his Newsweek column last year, echoing, in an albeit softer tone, Mellon and Schumpeter. "They dampen inflation. In weak markets, companies can't easily raise prices or workers' wages. Similarly, recessions punish reckless financial speculation and poor corporate investments. Bad bets don't pay off."

With the unemployment sword of Damocles hanging over their heads, workers will think twice about asking for a raise, and all of this will lead to a robust kind of capitalism for the capitalists: one with low inflation, low interest rates and very high return to capital. If that sounds familiar, it's an apt description of the economy of at least the last two decades, a kind of capitalism recently proven far less stable than it may have appeared, but one for which Samuelson is an unapologetic partisan: "The new economic order," Samuelson writes, "is indeed inferior to the imagined and romanticized version of the old order. But it's superior to the old order as it actually operated."

Samuelson is far from alone.

...Low inflation became a central obsession of the so called "Washington Consensus," the term given for the uniform prescription of stiff free-market medicine -- balanced budgets, privatization of government services, and tight monetary policy -- that dominated global economic policy in the 1980s and 1990s. 

What animated much of this advice was not just a rigid and dogmatic economic consensus, but also the puritanical normative assessment that a wicked economy must now pay its penance. (Of course said penance was never paid by those who caused the crisis: It was paid out of the pockets of the starving, the poor and working class.)

At least Samuelson isn't calling for a return to the gold standard. According to Liaquat Ahamed's Lords of Finance, which is focused on that "barbarous relic,"** back in the 1930s even Socialists were for a balanced budget in the face of depression:

As the Depression in Britain had deepened, the budget had slipped into deficit and was running around $600 million, 2.5 percent of GDP -- a modest gap given the circumstances.... In the light of what we now know about the way the economy works, it was completely absurd for the committee to propose the solution to Britain's economic problems, with 2.5 million men out of work, production down 20 percent, and prices falling at a rate of 7 percent a year, was to cut unemployment benefits and raise taxes. But at the time, the prevailing orthodoxy held that budget deficits were always bad, even in a depression.*** Maynard Keynes called the May report "the most foolish document I have ever had the misfortune to read."

The committee's recommendations split the cabinet. The majority, led by the prime minister, Ramsay McDonald, and the chancellor, Philip Snowden, though all fervent and committed Socialists, were wedded to the belief that the budget must be balanced, no matter that Britain was in Depression.

So we've made progress thanks to jaunty types like Keynes and Roosevelt. Though it remains the case that the obsession with inflation and the obsession with the deficit when a Democrat is in the White House are the "gold fetters" of today.
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* a member of my rogues gallery.
** Keynes's phrase for the gold standard
*** wouldn't want to upset the invisible bond vigilantes