"Last Dollar"

The day after President Roosevelt sent his budget message to Congress, citizens thumbed through the letter "S" in dictionaries looking for words to express emotion. Republicans magnified their feelings with "shocking." Democrats minimized theirs with "startling." Some liked "stupendous," others preferred "shudder," but most overworked word in the U. S. vocabulary was "staggering." The President planned to have the U. S. spend $31,179 a minute--every minute night and day--till June 30. He planned to have the U. S. borrow $6,000,000,000 before June 30--an amount slightly larger than the total amount of U. S. currency in circulation. He proposed to have the U. S. spend $17,000,000,000 in this fiscal year and next. He foresaw a public debt by July 1935 of nearly $32,000,000,000-- $6,000,000,000 higher than the post-War peak. The budget for fiscal 1934 (ending June 30 next) was presented to Congress in December 1932 by Herbert Hoover. That budget was revised by Franklin Roosevelt during the special session of Congress last spring. Last week it turned up again along with the budget for fiscal 1935, in the President's twin-budget message.

Outlay. When President Hoover planned the budget for fiscal 1934 the expected outlay for the Government came to $3,257,000,000.* President Roosevelt did two things to that figure. He lopped off $360,000,000 of veteran's pensions, and he set aside in a separate budget all emergency expenses. Last week's budget message estimated the Government's ordinary expenses (the cost of running its various departments, of paying veterans' pensions, interest on U. S. obligations, etc.) at the comparatively modest figure of $2,531,000,000 for 1934 and $2,487,000,000 for 1935 (see table). To these totals he added half a billion (for 1934) and three-quarters of a billion (for 1935)--entirely for expenditures by the AAA (which, because they are taken care of by processing taxes, he did not class as emergency expenses).

Income. The President estimated U. S. revenues, including processing taxes, at $3,260,000,000 for fiscal 1934 and $3,975,000,000 for fiscal 1935. To estimate these revenues it was necessary to guess at the state of business. His guesses (technically based on the Federal Reserve Board's index of industrial production) : business in fiscal 1934 to average approximately the same as business in 1931, business in fiscal 1935 to average just a shade better than business in 1930. His estimates of revenue did not include about $50,000,000 which may be added if the Federal liquor tax is raised to $2 a gallon (see p. 15), nor about $150,000,000 which may be raised by plugging holes in the income tax law, nor any prospective War debt payments. In spite of these omissions, 1934 revenue was estimated to exceed ordinary expenses plus AAA's half billion by $215,000,000. And 1935 revenue was estimated to exceed ordinary expenses plus AAA's three-quarter billion by $737,000,000.

Emergency. But in January President Roosevelt was no longer doing what he did in June. He no longer balanced ordinary expenses against revenues. He no longer kept emergency expenses as far as possible out of the budget picture. Instead, he set down his figures for emergency expenses right below ordinary expenses and added them all up in one total. That's what "staggered" the U. S. last week. For, when he put down $7,523,000,000 of emergency expenses for 1934 and $2,723,000,000 for 1935 he completely wrecked the budget balance. Chief items of these emergency expenditures:

Fiscal 1934 Fiscal 1935 (in millions) (in millions) PWA $1,677 $1,090 Conservation Work. . 342 65 Bank Deposit Guarantee 150 none RFC 3,970 } Unforeseen Expenses 1,166} 2000 All Others 218 49

Black Ink for Red. The two big prospective deficits of 1934 and 1935 will boost the public debt to $31,834,000,000 by July 1, 1935. At that date the President would call a halt: "We should plan to have a definitely balanced budget for the third year of recovery [1935-36] and from that time on seek a continuing reduction of the national debt. This excess of expenditures over revenues amounting to over $9,000,000,000 during two fiscal years . . . is a large amount but the immeasurable benefits justify the cost. ... If we maintain the course I have outlined we can confidently look forward to ... increased volume of business, more general profit, greater employment . . . greater human happiness."

Bookkeeping. Presidential candor rather than the extent of U. S. spending made the budget "staggering." If he had chosen to view the Government's finances as tycoons viewed their companies' finances in 1929--even as President Hoover did, and he himself last summer--he might have composed the same facts into a far milder picture. Hitherto RFC outlays have never been treated as expenditures. The RFC secured cash by selling its debentures to the Treasury. The Treasury treated the transaction not as an expenditure but as an investment (which it nominally was). Thus the $2,045,000,000 passed out by the RFC in fiscal 1932 and 1933 was not treated as a Government expenditure, was not added to the deficit, although it increased the public debt. Thus the President might have ignored the $3,970,000,000 RFC outlay of 1934, might have announced a deficit not of $7,309,000,000 but of $3,339,000,000. Then he might have told Congress in sober truth: "Last summer we planned to run into debt for $3,300,000,000 of emergency expenditures. We expect to exceed this amount by only $39,000,000. For fiscal 1935 our budget, including all emergency expenditures now foreseen, is estimated to balance with a surplus of $14,000,000. Some unforeseen expenditures may be required, but we hope to keep them as small as possible. Certainly the deficit for 1935 will be far smaller than for any fiscal year since 1931." He might also have added: "When all this is done our public debt will be $260 per capita compared to $870 per capita in Great Britain." The difference between this statement and the President's actual message is merely a matter of bookkeeping practice, and human optimism.

RFC. Of the $6,000,00,.000 new money which the Government will have to borrow in the next few months nearly $4,000,000,000 will be necessary to provide the cash which the RFC dispenses. Although everyone knew that vast RFC advances were being made, few people realized on what a grand scale big Texan Jesse Jones was playing Santa Claus to U. S. business. His biggest benefaction for fiscal 1934: new capital for banks, $1,350,000,000; carrying farm commodities, $498,000,000; state relief, $462,000,000. These "staggering" totals will not represent total losses. Although they represent for the most part loans and investments which no other Santa Claus was willing to make, the President was able to point out that over $3,500,000,000 of them have some security behind them. These domestic loans may be more easily collectible than the War Debts, although when they come to be paid off the deflationary effect may be too much for our economic system, just as paying off the War loans was too much for the international exchange system. The Treasury, however, is hopefully counting on getting back in fiscal 1936 $2,500,000,000 of the $6,000,000,000 it will have advanced to the RFC since 1932.

Watchdogs. In his budget message President Roosevelt took pains to protect the Administration against charges of extravagance. Comptroller General McCarl has not had authority to check and countercheck the expenditure of Federal emergency appropriations, nor has Budget Director Douglas had power to plan their spending. The President announced in his message that on that day he was giving to Watchdogs McCarl & Douglas the power to supervise emergency as well as ordinary expenditures. But on protest of PWAdministrator Ickes that the growls of "unsympathetic" Mr. Douglas would impede allocations, the President withdrew him.

Strategy. The President had a choice of two astute alternatives when he came to make up his budget: to balance the budget (which was possible if he denied himself "unforeseen" expenditures for fiscal 1935) or to unbalance the budget in a big way, to stagger the country with a deficit beyond all expectations. Few political quidnuncs failed to agree that he had chosen the more astute choice. Their varying reasons : 1) By telling the worst and putting the worst possible complexion on it he destroyed fears born of uncertainty, hastened the financial community's acceptance of the facts, cut down to a solid bottom on which a new structure of confidence could be built.

2) By revealing deficits which could not fail to stagger the public he bettered his bargaining power with Congress. Congress was set to demand large expenditures. Now at least a part of the public will press Congress to keep expenditures down.

3) He tossed an issue to the Republicans. Well does President Roosevelt know the danger of lacking an opposition. An Administration without an opposition may lead an easier life, but when pent up feelings swing against it, it dies a dreadful death.

4) At the same time that the President tossed the Republicans an issue he arranged to emasculate it. By telling the worst in January 1934, he has kept Republican orators from staggering the country with those disclosures in November when a new Congress will be elected. Moreover by that time he expects to have balanced the budget, to have begun reducing the national debt. Even if his plans go astray, if he fails to balance the budget in fiscal 1936, he will have the opportunity to present a balanced budget for fiscal 1937 which will be just begun when he campaigns for reelection. The worse present budgets may appear the better will be all future comparisons.

In Oklahoma City an editor sitting before his littered desk, flicked his cigaret to the floor, and turning deliberately to his typewriter put his finger on the right Key. He wrote: "Roosevelt has bet the country's last dollar on a single card and if he wins the result will be glorious."

The Budget In Brief The U. S. Treasury plays only with blue chips. Every unit in the following tabulation represents $1,000,000. Fiscal Years Ordinary Government Expenses Emergency Expenses Total Expenses Total Receipts Deficit or Surplus Public Debt 1916 $ 734 None $ 734 $ 782 +$ 48 $ 1,225 1919 War expenses not segregated from ordinary expenses 18,514 5,152 -13,362 25,482 1929 3,299 None 3,299 4,033 + 734 16,931 1933 3,404 $1,277* 4,681 2,080 -2,601 22,538 1934 2,531 8,038/- 10,569 3,260 -7,309 29,847 1935 2,487 3,474/- 5,961 3,975 1,986 31,834

*Exclusive of any theoretical retirement of the Public Debt.

*RFC expenditures only. Other emergency expenditures were treated in fiscal 1933 as part of ordinary expenses.

/-These figures include $515,000,000 for the Agricultural Adjustment Administration in 1934 and $751,000,000 for the AAA in 1935 although the President's Budget message treats these sums as ordinary, not emergency expenses. The processing taxes, specifically earmarked for AAA expenses, are lumped under total receipts.

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