Continued Deficit Spending — Why We Should Care

 At more than 9 trillion dollars today and counting, your share of the national debt, whether you are working, retired, still in school, or still in diapers, now comes to about $29,000.  Just to pay the interest on this debt takes something like 9 cents out of every tax dollar.  As the debt rises, so does the interest payment. Think of it as making the minimum monthly installment on Uncle Sam’s VISA or MasterCard. 

“Whose fault is this anyway,” you may well ask?  “How’d we get into this mess?  It’s very tempting to blame the government.  But it’s really not their fault.  They obviously don’t know what they’re doing.  Why, they can’t even agree on how big a problem it really is.  So, it’s our fault really because we listen to politicians and believe what their “store-bought” economists claim.  The White House maintains that even if major tax cuts set to expire in 2010 are not left in place, rising tax revenues from a growing economy will produce a surplus of about $150 billion by that year.  The Congressional Budget Office, in the other hand, says that if the tax cuts stay in place until then, the projected surplus vanishes and becomes a $100 billion deficit.

As I teach my students, it is impossible to separate politics from economics.  From the above, you can easily understand why this is true.  Every administration since George Washington’s has “tinkered” with our economy, implementing various, different social and economic programs, albeit, with the best of intentions.  As an example, Thomas Jefferson nearly destroyed the U.S. economy with his Embargo Act of 1807 baring trade with European nations in an attempt to avoid War with France and Great Britain.  In more modern times, Franklin D. Roosevelt implemented the New Deal, which was deficit spending intended to “jump start” our failed economy during the Great Depression.  But, historians tell us that what really got us out of the Depression was not the New Deal, it was the Second World War.

In 1981, compared to the nation’s annual income, the gross national debt reached its lowest point since before Roosevelt’s New Deal.  Presidents Truman, Eisenhower, Kennedy, Nixon, and Carter all made progress toward eliminating the debt following WWII by keeping government spending less than income from taxes and other sources.  Had the trend under these presidents continued to the present day, the debt would now be history.  Consider the graph below courtesy of ZFacts.comHowever, President Ronald Reagan implemented unprecedented peacetime deficit spending during his administration which some say brought the Soviet Union to the bargaining table on strategic arms and eventually brought down the Berlin Wall and an end to the Cold War.  This, one might argue, was a good thing.  But it was also a very costly thing. 

This is not partisan politics speaking, it’s history combined with “positive” economics which illustrates the relationship between social and economic politics.  From right off the White House web site in 2001 (since removed for some reason) we read (past tense):  “The traditional pattern of running large deficits only in times of war or economic downturns was broken during much of the 1980s. In 1982 [Reagan’s first budget year], partly in response to a recession, large tax cuts were enacted as fiscal policy. However, these were accompanied by substantial increases in defense spending.  Although reductions were made to nondefense spending, they were not sufficient to offset the impact on the deficit.  As a result, deficits averaging $206 billion were incurred between 1983 and 1992.  These unprecedented peacetime deficits increased debt held by the public from $789 billion in 1981 to $3.0 trillion (48.1% of GDP) in 1992.” [emphasis added]

 National Debt as a Percent of the GDP

Now, since 2001 and the beginning of the Bush-Cheney tax cuts (begun during peacetime with deficit nondefense spending targeted for reduction but defense spending increased and continuing at higher levels since September 11, 2001 and our declaration of War on Terror), we are at a crunch point.  Our economy is still expanding, yes, but at an increasingly slower and slower pace.  In fact, we may already be on the verge of a recession (see my earlier posting, Will the Real State of Our Nation’s Economy Please Stand Up?)  Therefore, all the progress that was made toward paying off the National Debt by every president since Harry S. Truman up to the Regan and Bush administrations will be for naught.  If our government doesn’t stop spending more than it takes in, it is highly doubtful in my opinion that even our next generation or the generation after that will be able to get it under control.

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Published in: on September 11, 2007 at 8:44 pm  Comments (1)  

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One CommentLeave a comment

  1. Kent, your posting is alarming to say the least BUT truthful. I wonder if anyone is listening or paying attention to America’s financial dilemma. I can only think of one real solution to the problem and that is to elect real leaders for the future of our country and at present cannot think of where they are to be found. I am beginning to wonder if Americans are afraid to think for themselves.

    Nancy Coleman


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