The Story of the U.S. Debt

Since the end of WWII the debt decreased relative to the size of the economy until President Reagan was elected because of economic growth and inflation.  Before President Reagan there was less divide in the parties on spending and taxes. The failure of conservative hands-off economics in the 1920s led to the great depression.  Successes were had in many federal spending initiatives like the new deal, labor regulations like the 40-hour week, social security, the successes of Medicare and Medicaid, progressive taxation, and the debt continued to decline after the war.  Even president Nixon raised taxes and the Nixon/Ford administrations presided over the heyday of the EPA with the Clean Air Act, Clean Water Act, Ocean dumping prevention, lead removed from gasoline, and wastewater permitting.

But in time past lessons are forgotten.  President Reagan’s message and political identity was the government was too big, it wasted money, and taxes were too high and he was going to do something about the debt.  Since then this message has been conservative dogma.  It’s a message of achieving moral high ground and simultaneously giving citizens more money and relieving us of authority and change anxiety.  It’s also unappreciative of the countless good deeds the government has done, high in cynicism, low in vulnerability, and short on details/intellectual work.

The predictable result is all 3 republican takeovers since then (Reagan 1981, Bush (43) 2001, Trump 2017) have led to deficit exploding tax cuts and democratic presidents trying to reign them in when things switch back.  When conservatives are in control fiscal responsibility is ignored and spines are cast aside.  When democrats come back the republicans shift to moral high ground, extortion, ride or die, cut the baby in half etc.

The important measure of federal debt is its size in relation to our economy, which is why we get away with ever increasing debt as the economy is increasing with growth and inflation as well.  Here is how our debt has changed since the 1920s.  Notice the inflection points.  That is where something changed.

Because the government borrows money at about the rate of economic growth the debt just kind of sits there once borrowed like a 0% interest loan.  So if the government borrows $100 and then the economy doubles and also the interest doubles that debt to $200 we can now say the action that led to borrowing $100 at year X is responsible for $200 in debt at year Y.

We can attribute our debt to past activity by multiplying the percent of the debt relative to the economy by today’s economic size (GDP).  This is important in telling the story of our debt and not letting convenience dictate fact.

Presidents Ronald Reagan (R) (40) and George H.W. Bush (R) (41) – Conservative Revolution

Official White House Photos

President Reagan inherited a stable debt at 31%.  The Reagan administration cut taxes in 1981 and 1986 which were in place until 1993.  The debt climbed to 64% (a 33% increase). The tax policy was in place for 21T GDP x 33% = $7.1 Trillion of today’s debt.

  • Inherited a flat debt/GDP trend
  • Left debt increasing 3% per year compared to GDP

“We don’t have a trillion dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much”

Ronald Reagan

(Spending would go up during his administration, the debt would go to $4 trillion by the time the democrats took over the white house again)

“Government isn’t the solution to our problem, government is the problem”

Ronald Reagan

“It just isn’t going to work, and it’s very interesting that the man who invested this type of what I call a voodoo economic policy” (about Reagan’s tax policies)

George H.W. Bush

-George H.W. Bush (later said he was kidding after becoming Reagan’s running mate)

President Bill Clinton (D) (42)

Official White House Photo

President Clinton was able to enact his tax policy in 1993.  He left office with a budget surplus and debt at 55% of the economy and the debt in decline.  The 2000 election debate between Bush and Gore was what to do with all the money.  His tax policy was in place for a 9% reduction in the debt.  21T GDP x -9% is -1.9 Trillion.

  • Inherited debt increasing 3% per year compared to GDP
  • Left with debt decreasing 3% per year compared to GDP

President George W. Bush (R) (43)

Official White House Photo

President George W. Bush inherited a budget surplus.  He cut taxes in the beginning of his term before entering the War on Terror and Iraq War.  The housing bubble occurred at the end of his term and he left the office with the country in recession.  The Bush tax cuts were in place until 2013 where debt stabilized at 99% of GDP.  The tax policy was in place during a 44% debt increase, 21T x 44% is 9.2 Trillion.

  • Inherited debt decreasing 3% per year compared to GDP
  • Left with debt increasing 6% per year compared to GDP

President Barrack Obama (D) (44)

Official White House Photo

President Obama inherited the recession.  His early years were spent on the recession and healthcare.  The economy wasn’t stabilized until republicans took over the house in part by blaming him for the debt.  He was able to pull back the Bush tax cuts in 2013 for wealthy Americans.  The debt stabilized at that point at 99%.  At the end of 2017, before the Trump Tax cuts, the deficit was 103%.  An increase of 4% or $0.8 Trillion.

  • Inherited debt increasing 6% per year compared to GDP
  • Left with debt decreasing 1% per year compared to GDP

President Donald Trump (R) (45)

Official White House Photo

President Trump inherited a stable debt picture that actually decreased in 2017 before he could implement the corporate tax cuts.  The debt to GDP ratio is estimated to increase another 66% by 2050 according to the Congressional Budget Office after the corporate tax cuts are in affect (as of 2019).

  • Inherited debt decreasing at 1% per year compared to GDP
  • 2018 debt increased 2% per year

Temptation Narrative – it doesn’t really matter what the facts are, the temptation narrative for the powerful is the same.  Giving the top tax cuts helps everyone because they are in charge and responsible for jobs.  Be as cynical as possible toward the poor and the government, and do little or no work to show for it.  It gives rich circles a common enemy to unite around, shows no vulnerability, giving themselves tax cuts is the moral high ground.  It uses the cynicism tool (you are fool if you think the answer is hard work and buying in) effectively.

Was there an economic boom in the 1980s? – conservatives will often talk about the Reagan recovery and try to justify how great cutting taxes is.  What’s the truth?

 1970s1980s1990s2000-2006
Average Real GDP Growth [1]3.3%3.1%3.4%2.6%

The heart of the economy (producing goods and services) doesn’t care what the taxes are.

References

  1. U.S. Bureau of Economic Analysis. Gross Domestic Product. Supplemental Information and Additional Information Tab. Current-Dollar and “real” GDP. https://www.bea.gov/data/gdp/gross-domestic-product. Accessed June 7, 2020.
  2. Treasury Direct. Historical Debt Outstanding – Annual. https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm. Accessed June 20, 2020. (Indicated as 6 on the debt graph)

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