The old 1960s slogan "guns and butter" is suddenly everywhere. A feature story in The New York Times was headlined, "Bush Can Have Both Guns and Butter, at Least for Now." A Wall Street Journal column by Holman Jenkins was titled, "An Oldie but Goodie: Guns Plus Butter." Columnist Pat Buchanan writes, "LBJ cut taxes and embraced a guns-and-butter budget. ... Bush is traveling the same road."
With federal spending up by 7.6 percent a year over the past two years, even before the staggeringly expensive Medicare and energy legislation the White House supported, it is hard to quarrel with the idea that President Bush is the biggest spender since LBJ. What I object to is the universal misuse of the economic concept of a guns and butter tradeoff, particularly when used to blame inflation on supposedly inadequate taxes during the Johnson administration.
The TV show "West Wing" once ran an episode called "Guns Not Butter." But the fictional President Bartlett is supposed to be a former economics professor. In economics, the tradeoff between guns and butter refers to the whole economy, not just the federal branch of government. And it has nothing to do with inflation.
Economic textbooks use the choice between guns and butter to illustrate "the production possibility curve." If we assume (pretend) the economy only produces those two goods, that it is at full employment and that productivity gains are impossible, then the only way to produce more guns would be to lure labor and capital out of the butter industry. Just look at North Korea, where the gang of thugs in charge would rather starve everyone than cut back on weapons. Yet notice that balancing the North Korean budget would be entirely irrelevant to their cruel choice of guns over butter. The people would still starve.
Despite these quibbles, I can imagine a potentially instructive way to apply the guns and butter metaphor to federal spending: Just replace butter with federal transfer payments, and guns with federal hiring and purchasing. But before we see what that tells us, we first have to unravel a stubborn historical hoax about guns and butter in the '60s.
The author of that New York Times story on this topic, Niall Ferguson, wrote that, "In the late 1960s ... deficits were partly financed by printing dollars, which ultimately led to higher prices." Economist Gary North likewise wrote, at lewrockwell.com, that Johnson "did not raise taxes until he imposed a mild 10 percent income tax surcharge in 1968. By then, the Fed had pumped in so much money to fund the debt that price inflation was becoming a problem."