Tyler Cowen sends us to Friedrich August von Hayek, T.E. Gregory, Arnold Plant, and Lionel Robbins on October 18, 1932.
I'm trying to get Ryan Avent to let Hayek represent the Pain Caucus on the Economist's "By Invitation" feature: he's more articulate than most members of today's pain caucus, and also more upfront in what he wants to see.
Hayek et al.:
Sound familiar?: We are of the opinion that many of the troubles of the world at the present are due to imprudent borrowing and spending on the part of the public authorities. We do not desire to see a renewal of such practices. At best they mortgage the Budgets of the future, and they tend to drive up the rate of interest--a process which is surely particularly undesirable at this juncture, when the revival of the supply of capital to private industry is an admittedly urgent necessity. The depression has abundantly shown that the existence of public debt on a large scale imposes frictions and obstacles to readjustment very much greater than the frictions an dobstacles imposed by the existence of private debt.
Hence we cannot agree with the signatories of the letter that this is a time for new municipal swimming baths, etc., merely because "people feel they want" such amenities.
If the Government wish to help revival, the right way for them to proceed is, not to revert to their old habits of lavish expenditure, but to abolish those restrictions on trade and the free movement of capital (including restrictions on new issues) which are at present impeding even the beginning of recovery.
And a little fact-checking. Barrie Wigmore points out:
The low point in government bonds was in January 1932, when the U.S. Treasury 4 1/4 percent bonds due in 1952 hit $99... thereafter prices rose... reduced U.S. government bond yields from an average of 3.92% in March 1932 to 3.76% in June...
U.S. debt-to-GDP was to more than quadruple from its 1932 value in the New Deal and World War II, with no signs at all that such borrowing was in any way "imprudent."