A Response to William McKenzie of the Dallas Morning Nees
McKenzie wants us to focus on the $16 trillion federal debt ( “Let’s make right-sizing government the goal”). First, remember that the United States has never been out of debt. We came close in 1835. The historical trend from the beginning of the Revolutionary War to the present has been a growing debt. The size of the national government has been growing since the adoption of the Articles of Confederation. In fact, the adoption of the Constitution was a significant growth in federal government.
So, let’s talk about debt in terms of presidential periods, remembering that fiscal policy involves Congress as well as presidents. I will also begin with Wilson because that era first saw a billion dollar debt. The Wilson era saw a 722% increase in the national debt, largely attributable to WWI. The last two years, as we demobilized the debt was actually reduced. That reduction continued under Coolidge (-14%) and Harding (-17%) and into the first two years of Hoover. Those debt reductions ended with the beginning of the Great Depression; the Hoover years saw the national debt increase 33%, accumulated after the 1929 crash.
Roosevelt (whom McKenzie mentions) saw the biggest debt run up – a whopping 1,048%. Some of that was the New Deal attempt to end the Great Depression; most of it was the cost of WWII – which big, deficit spending most economists agree ended the Great Depression. Yes, you can spend your way out of a depression.
Truman saw the deficits fall dramatically and even surpluses that reduced the national debt in 1947, 1948 and 1951. This era saw an increase in the national debt by 3%.
Eisenhower was the last president who saw a reduction in the national debt in 1956 and 1957, but in the entire period the debt rose 9%.
Kennedy/Johnson saw the debt rise by 22% — partly due to Great Society programs and the Vietnam War.
Nixon/Ford saw the debt rise by 98% — partly due to the Vietnam War and sharply rising inflation in Nixon’s second term.
Carter saw the debt rise 43% as inflation continued.
Reagan saw the debt rise by 186%; G.H.W. Bush by 54%.
Clinton saw the debt rise by 32%. In 2000 it rose less than 1%.
G.W. Bush saw the debt rise 105%, attributed to the tax cuts of 2001 and 2003, the prescription drug program and the Iraq and Afghanistan wars. The sharpest rises occurred in the last two fiscal years – 11% and 18%.
The first full full year of Obama’s presidency saw the increase fall to 14%.
I can only conclude that since the days of Truman, Democratic presidents have seen more fiscal restraint than Republicans. Truman 3%, Kennedy/Johnson 9%, Carter 98% and Clinton 32% compared to Eisenhower 9%, Nixon/Ford 22%, Reagan 186%, G.H.W. Bush 54% and G.W. Bush 105%.
But absolute debt isn’t a particularly useful number. If you are considering taking out a mortgage (i.e. increasing debt) to by a $500,000 house, there is a difference if your income is $50,000 or $500,000. All else being equal, the debt load for the higher income is less than for the lower. The closest comparison is national debt as a percentage of Gross Domestic Product, which serves and an indicator of the ability of the nation to service the debt.
At the end of Fiscal Year 1946 the national debt stood at 121% of the GDP. That is the highest I have found going back to 1900. That debt represents the debt accumulated by the U.S. government during the Great Depression and WWII. In 1981 it had fallen to 32% of GDP. Remember this is not a reduction in the dollar amount of the national debt — that had risen by $79 billion.
Beginning with FY 1982 we see the debt as a percentage of GDP rising every year except for FYs 1996 through 2001. Thus from Truman through Carter, the trend was for the debt to GDP ratio to fall; and from Reagan through Obama, except during the Clinton years, for the debt to GDP ratio to rise.
It is generally said that the fiscal policies of the federal government during WWII created the modern middle class. That may be an exaggeration, but it is certainly true that the size of the middle class grew in those years. The debates in the early postwar period were whether or not that middle class could be sustained in a postwar economy. The remarkable thing is that it was, and it grew. Certainly things like the G.I. Bill contributed to that. Returning veterans were often the first in their families to get a college education and become “white collar professionals” instead of “blue collar laborers.” Veterans could obtain ownership of homes, cars, refrigerators, TVs, etc.
We also see in that postwar period an increase in median income and, in fact proportional increases for low, middle and high income groups. Virtually all Americans were enjoying increased prosperity. That phenomenon does seem to have slowed some in the 1970s. But beginning in the 1980s we saw something new (or rather more like what we had seen in the 1920s and even the 1890s. High income groups saw their income soar, middle income workers saw their incomes stagnate, and low income workers saw their incomes fall. The result was a radically changed income disparity and wealth disparity. Many economists do not believe this bodes well for the future. The economic precedents (e.g., 1920s and 1890s) suggest grave dangers.
Finally, I would close with an observation. I suspect that the management of the Dallas Morning News, when considering going into debt to obtain a new press will weigh both its ability to service the resulting debt and the potential increase in profit resulting from the more efficient press. It would seem to me sensible that such factors enter into the discussion when discussing federal fiscal policy. As mentioned earlier, federal investment in education (via the G.I. Bill) resulted in increased productivity and prosperity for the American people. And, although it increased debt, it more than increased the capacity of the government to service that debt and also increased government revenues. Many, many other examples of this could be cited such as the government guarantee of home loans to returning veterans in the G.I. Bill, the construction of the interstate highway system begun by Eisenhower, rural electrification and so forth. It can similarly be argued that government investment in the health of the American people is such an activity, since there can be no doubt that healthy workers are more productive than unhealthy workers.
 “Historical Debt Outsanding” In the discussion that follows I have begun the “Presidential Eras” with the first full fiscal year of their term – typically beginning in September – through the fiscal year that ends in the first year of the next president. While that may bias somewhat, I would argue that the roughly u.5 months that overlaps is more a consequence of the predecessor than the incumbent.