Deficits = Prosperity; Surpluses = Depression

Economics is hard.  That whole "humans behave rationally" axiom that economists rely on has always made me suspicious.  More than suspicious, actually.  Humans are not rational; we're herd animals, we're part of a crowd.

History, however, can tell us how humans, faced with certain conditions, have behaved in the past.

All through the Bush years, no one paid any attention to the fact that the US government was spending money first like a drunken Yale fratboy and then like a drunken Harvard MBA.  Now Obama is president, all of a sudden everyone is worried about our deficit.  Why?  Really, why?


W

ith one brief exception, the federal government has been in debt every year since 1776. In January 1835, for the first and only time in U.S. history, the public debt was retired, and a budget surplus was maintained for the next two years in order to accumulate what Treasury Secretary Levi Woodbury called “a fund to meet future deficits.” In 1837 the economy collapsed into a deep depression that drove the budget into deficit, and the federal government has been in debt ever since. Since 1776 there have been exactly seven periods of substantial budget surpluses and significant reduction of the debt. From 1817 to 1821 the national debt fell by 29 percent; from 1823 to 1836 it was eliminated (Jackson’s efforts); from 1852 to 1857 it fell by 59 percent, from 1867 to 1873 by 27 percent, from 1880 to 1893 by more than 50 percent, and from 1920 to 1930 by about a third. Of course, the last time we ran a budget surplus was during the Clinton years. Has any household been able to run budget deficits for approximately 190 out of the past 230-odd years, and to accumulate debt virtually nonstop since 1837? As discussed above, there are firms that grow their debt year-after-year so it is conceivable that one might be found with a record of “profligate” spending to match the federal government’s. Still, the claim might be that firms go into debt to increase productive capacity and thus profitability, while government’s spending is largely “consumption”.
Fourth, the United States has also experienced six periods of depression that began in 1819, 1837, 1857, 1873, 1893, and 1929. Therefore, every significant reduction of the outstanding debt, with the exception of the Clinton surpluses, has been followed by a depression, and every depression has been preceded by significant debt reduction. The Clinton surplus was followed by the Bush recession, a speculative private-debt fueled euphoria, and then the collapse in which we now find ourselves. The jury is still out on whether we might yet suffer another great depression. While we cannot rule out coincidences, seven surpluses followed by six and a half depressions (with some possibility for making it the perfect seven) should raise some eyebrows. And, as we will show below, our less serious downturns in the postwar period have almost always been preceded by reductions of federal budget deficits.

From http://www.nakedcapitalism.com/2010/04/marshall-auerback-troubles-in-the-eurozone-will-the-contagion-affect-the-u-s.html#comments

List of Recessions in the US http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

US budget--historical  http://www.gpoaccess.gov/usbudget/fy10/hist.html