As communism fades from memory, fewer and fewer of us are going to get the reference Iwan Morgan makes in his absorbing book. Morgan refers to his subject as “the other red peril.” Communism, at least the Soviet variety, is a good bet to stay settled in the ash heap of history. But federal budget deficits look like they are now blooming into a long and healthy future. The other red peril?

It was only a few years ago that historians’ minds boggled at the magnitude of the Reagan deficits. Topping out at $220 billion a year nominally, 6 percent of GDP—what a wild world it was back in the 1980s. Now in the late Great Recession, we have seen seven times that dollar level in nominal terms and nearly double as a percentage of GDP.

Who said anything about peril? After all, in the Keynesian mind-set, deficits are more than an unqualified—they are a necessary—good. There are no trade-offs in the strict Keynesian universe to budget deficits. Burden on the grandchildren? Not so, because they can be covered by fiat money. Inflationary? Itself a boon, in that given a progressive tax code, inflation lessens inequality. Irresponsible? No again—the Keynesian revolution was “a remarkable intellectual event,” as Robert E. Lucas said in the 1970s. And as we have heard from quite a few quarters in our time of troubles of late (see Paul Krugman), the problem with the 2009 stimulus was that it was not big enough.

The reason for a book on the recent history of deficits is that they were there. “Gross as a mountain,” as Shakespeare might say. Morgan has good grounds for starting his story with Jimmy Carter. There was a deficit of alarming size ($25 billion) in 1968, but it was nixed the next year when came a tax surcharge, the minimum tax, and the accompanying recession. Deficits came in the late Nixon and Ford years as well, but clearly these were therapy for the worst recession since the Great Depression of 1973–75. However, 1976 began three straight years of real GDP growth over 4.6 percent, and deficits have been endemic ever since. This seems to make no sense; hence the book.

Also in 1976, there was indubitably no Vietnam War anymore. The Great Society, at that point, we can further agree, was at best the walking dead. Again, this is when our new era started. In Morgan’s words: “U.S. withdrawal from the Vietnam War did not lead to restoration of balanced budgets. Moreover, economic recovery from the sharp recession of 1974–75 only brought the deficit down in the late 1970s to a GDP level comparable with its occasional high points [emphasis added] in the postwar quarter century. The mushrooming of the gap between outlays and revenues in the early 1980s confirmed that a new fiscal era had dawned. The United States has been living ever since in what can be termed the age of deficits” (2).

When you climb a mountain, you pick a face to attack. In the case of this Everest, Morgan chooses presidents. This is a curious option, but a good one. It is curious not least because with great fanfare in 1974 Congress seized control of the budget process. This was when the system of two yearly fiscal resolutions was put in place, the Congressional Budget Office was founded, and Nixonian impoundment of funds by the president became nigh impossible. And yet, as Morgan is correct to point out, it is precisely since this flurry of congressional activity that the public has by and large seen the deficit (and its scarce twin, the surplus) as one of the prime “grades” to be given a president. Before, the public generally saw deficits as a creature of Congress and the president as a perennial scold against them.

Morgan begins the story by laying out how deficits became considerable and chronic in the years of good economic growth that were Jimmy Carter’s, at least until 1980. Morgan makes a strong case that animosity between the (heavily Democratic) Congress and Carter was the main driver. Carter came into office in 1977 guns-a-blazing that he was going to be fiscally responsible. He made a show of blocking pet congressional projects, and this got the relationship with Capitol Hill off to a frosty start. In Morgan’s credible telling, each side then only doubled-down on its original position. Congress found religion in bald Keynesianism, with Hubert Humphrey pushing as expansive a jobs bill as has ever been tried (it included a federal guarantee of a job). “A balanced budget at the expense of a frustrated. . . . America is no answer to our problems,” Humphrey said in 1977 as he lay dying (56). Carter would scrawl on the latest one-upped spending bill to cross his desk, “Do not ask me to approve a higher figure in the future” (55).

A look at the record of the government’s accounts (which The Age of Deficits abstracts for the whole era in the appendix) shows that Congress won this scrap. Outlays in 1981 (a budget prepared in January 1980) were 23 percent higher in real terms than in 1975 and amounted to 22 percent of GDP. In the entire Vietnam–Great Society era, the highest level of expenditures was 20.5 percent of GDP (in 1968), a number itself eight-tenths of a point below the 1975 mark. The Carter years saw spending on a heroic course.

This is not to say that receipts were in a bad way. Receipts inexorably rose, and well, in this period. From 1976 to 1981 (including a transition quarter), receipts as a percentage of GDP were, consecutively, 17.1, 17.7, 18.0 (twice in a row), 18.5, 19.0, 19.6. This is a continuous upward line at a very nice clip, about half a percent of aggregate output per year. Yet the deficit refused to budge from the new normal of 2.7 percent of GDP, again a level hit but once (1968) in the Vietnam–Great Society era.

On this strange receipts performance we could have expected more from Morgan. He wrestles with the issue but speaks softly in a discussion of a key matter. Morgan makes this observation: “The combination of rising employment levels, the ‘bracket creep’ effect of inflation-linked wage increases putting workers in higher tax brackets, and bigger Social Security revenues boosted federal coffers in the late 1970s” (63). In point of fact, these phenomena were so powerful that they led to no less than a cascade of dollars into the Treasury. In 1980, the year of 14 percent inflation, each point of inflation translated into a 1.7 percent increase in federal receipts. The income tax was unindexed for inflation, meaning that cost-of-living adjustments were taxed at the marginal rate, and these rates marched up to 70 percent. Social Security tax rates, for their part, rose by more than a third in the decade prior to 1981, and thus captured the inflationary gain from cost-of-living increases plus 33-some percent. Inflation in the double digits in combination with the tax code was a revenue-generating machine of epic proportions in the Carter years, while deficits persisted at an uncommonly high level. The details of bracket creep are overlooked in this book. Confronting them cannot but lead all curiosity about the deficit to the realm of spending.

Our most famous deficit president is Ronald Reagan. He campaigned for office in 1980 appealing for a balanced budget, and left office having presided over eight years of deficits averaging $175 billion (4.3 percent of GDP) per year. Here of course Morgan has to cut through all the finger-pointing. He does this admirably, by scrutinizing White House memoranda in the Reagan archives in California. One conclusion Morgan arrives at is the common one, trumpeted repeatedly in the most famous memoir of the period, David Stockman’s Triumph of Politics. This is that as the 1980s wore on, nominal GNP (the convention of using GDP began in 1990) did not come in anywhere near what Reagan’s first projection in 1981 had anticipated. Therefore, tax receipts had to come in low too.

It is worth noting that the nominal GNP numbers in The Triumph of Politics are inaccurate, understated by trillions. It is also worth noting that while the Reagan “Rosy Scenario” projection of February 1981 did in fact overstate out-year nominal output, it nearly nailed the real long-term growth rate (it said 4.5 percent against the actual 4.3 percent). Only in the world of fiscal accounts can a fabulous record in real economic growth be no great shakes if the nominal number comes in low. The logic is topsy-turvy. The narrow gap between nominal and real GNP that materialized in the 1980s and that Stockman lamented (and ruined the fiscal accounts) represented no less than the evaporation of the most hated scourge in American life at the time—inflation. It would have been nice for Morgan to put Stockman in the doghouse for his inanities; that historians such as Sean Wilentz have used his memoir uncritically as a source is quite a faux pas.

Morgan makes a magnificent point about the major Reagan tax increase, the “TEFRA” act of 1982. This is the law, in the face of the deficit swelling incomparably toward 6 percent of GDP, that netted tens of billions largely by excises on products in telephony and air travel. “If its opponents saw TEFRA as a counterrevolution,” Morgan writes that Reagan “saw it as the means to preserve the fundamentals of what he had already achieved” (98). The striking thing about the Reagan tax cut of 1981 is that its rate-reduction centerpiece never got shorn in the heat of the moment—even though the lowering of marginal rates was to be phased in through 1985, and deficits rocketed up to the $200-billion-plus mark under its aegis. Goodness knows Congress—including Republican opponents of Reagan such as Senator Bob Dole—tried to kill the next installment of the tax cut at every turn in the face of deficit news. Reagan offered TEFRA as an alternative tax system, so long as his income-rate reductions stayed on course.

It was probably this signal in the summer of 1982—that the rate cuts scheduled in 1981 were going to keep on coming—that was responsible for the Dow Jones average’s secular floor of 770 coming just weeks before TEFRA’s passage. The Dow went up 30 percent during the rest of 1982, and over the next eighteen years increased by a factor of fifteen. TEFRA was an inflection point indeed. Into the bargain, the industries it hit were in the process of deregulation. The new taxes on their products were probably a quid pro quo (volunteered by the industries themselves) to ensure that deregulation would continue apace. TEFRA is best understood not so much as a tax increase but as a preservation of the original tax cut, a point Morgan crucially makes, and as a guarantee of economically salutary business reorganization as well.

Morgan could have discussed the high likelihood that outlays swelled all the way to 24 percent of GDP in the 1980s because Reagan’s opposition in Congress refused to believe that inflation was vanishing from the scene. Jim Wright and company in the House insisted on spending resolutions in keeping with Carter-era inflation. The argument became absurd with every passing year of 3 percent inflation from 1983 on, and hence there began to be signs of convergence between receipts and outlays. In fairness, this is properly the subject of a companion volume on Congress’s role in the age of deficits.

With the Bush, Clinton, and Bush II presidencies, we see the effects of an attenuated source base. The kind of records available from an administration more remote in time such as Reagan’s and Carter’s cannot be matched for the recent administrations. Nonetheless, Morgan scores some hits. One is reminding us that George H. W. Bush spent his first year, 1989, pressing for a capital-gains tax cut. It is astounding that he did not get it, given that it was his first year, and that he had won the election with some four hundred electoral votes. His opposition in Congress was acute, and Bush failed to marshal his resources to deal with the pressure.

As goes the deficit, this development was important in that, as Morgan relates, the tax increase of 1990 was itself a congressional suggestion that Bush took in lieu of the cap‐gains cut in order to score an achievement. The economy soon tipped into recession—a recession probably unthinkable with a reduction of capital-gains rates back to the 1986 level of 20 percent.

The happy Clinton story is well done. The strange thing about Clinton is that for his first two years, he wished to be a voracious spender—health care. And yet after 1994, he got exercised only about the minutest of federal programs, Americorps (which spent under a billion a year) absorbing inordinate presidential energy. With the president obsessing on small things, the deficit had no hope, and it gave way to surplus in 1998.

Morgan goes over Clinton’s stupefying arguments for using the surplus to guarantee Social Security—as if the government has the capacity to save money. Money’s value in the future is simply the degree to which it can serve as money in the future. That degree will be small if the economy is not robust. Social Security can only be guaranteed by permanently strong economic growth—no matter what is in a “lockbox.” Clinton’s confusion in this regard prevented him from cutting taxes in 2000, when the surplus was a whopping $236 billion, and sure enough growth evaporated into recession.

The Bush II section is of course provisional, if learned, but there is one technical mistake. “At the end of his first term,” Morgan writes, “[Bush] promised to halve the budget deficit by the time he left office, a pledge ultimately he failed to fulfill” (1). The 2007 deficit was less than half that of 2004, even if in the moment Bush left office it was much higher.

Monetary issues play a small role in this book. But The Age of Deficits does get across the sense that presidents—if not Congresses—have been relatively helpless against “the other red peril” that has haunted the last four decades. Something else is the real cause of the imbalance. We shall have to consider the significance of the first year that deficits bulged, 1968. This was also the year when the United States began to abrogate its agreement to keep the dollar convertible, a move formalized in 1971. It is mighty hard to run deficits in the absence of a paralyzing liquidity crisis given a collateralized currency. The age of deficits is probably best understood as the era that followed that of Bretton Woods.