Combatting the addiction to deficits and debt
08/26/19 Filed in: Budget
Reader feedback at end
Traditionally, the prevailing fiscal pattern for our federal government was to take on debt as necessary to cover wartime outlays (e.g., for the Revolutionary, Civil, and World Wars) and run a surplus (or at least balance the budget) in peacetime years.
Thus, the government ran a cumulative surplus from 1789-1849 (paying off all Revolutionary War debt), borrowed heavily during the Civil War but paid off much of this debt by 1900, maintained budget balance during the period 1901-1916, borrowed heavily during the World War I years (for the US) 1917-1919, and ran surpluses every year from 1920-1930. OMB historical tables, download Tables 1.1 and 7.1.
Deficit spending was in vogue from 1931-1940 (the Great Depression/New Deal era), and massive spending increases during World War II took total debt as a percentage of Gross Domestic Product to an historic peak of 119% by 1946. In the post-war era, there was a mixture of surplus and deficit years (1947-49, 1950, 1951, 1952-55, 1956-57, 1958-59, 1960, 1961-68, and 1969), but – largely due to economic growth plus inflation – total debt was reduced to 37% of GDP.
Starting in 1970, there have been deficits every year except for 1997-2000 (President Clinton’s second term). And in recent years the magnitude of the deficits has soared, fueling an alarming run-up of debt. According to a Congressional Budget Office chart that was shown in last week’s blog entry, government debt as a percentage of GDP will surpass the post-World War II peak within about 20 years and keep running up from there.
On the supposition that such a trend cannot be allowed to continue, we offered – not as an actionable proposal (the political will does not currently exist) but to demonstrate that the budget could be balanced if our political leaders made up their minds to do it – a blueprint for $1 trillion per year in deficit reductions (primarily spending cuts). Here’s the summary table for ready reference. Politics aside, the budget could be balanced, 8/19/19 (scroll to the bottom for reader feedback).
One reader suggested that “Modern Monetary Theory” is now ascendant, wherefore it’s futile to hope that the budget will be balanced. Another reader pointed out, however, that the budget was balanced not so long ago, i.e., in the second term of the Clinton administration. If the feat was accomplished then, why should it be impossible now?
Hmm, what did happen in the second Clinton term that made a balanced budget feasible? Who were the key players (including members of Congress and key officials as well as the president)? What were they thinking? And why, after the goal had been accomplished, did deficit spending roar back into vogue?
More to the point, can the prevailing mindset in DC be changed now and if so what could SAFE et al. do to help make it happen? Or as the saying goes: “If not us, who? If not now, when?”
Ever hopeful, Jim Thomen and your faithful scribe have secured a September 30 appointment with Delaware’s senior senator to compare notes on addressing the fiscal problem. Based on two prior meetings with Sen. Tom Carper, we think such a discussion may prove productive.
In addition, individualized requests for support and/or feedback were sent to:
•Congressional leadership (letter individually addressed to Rep. Nancy Pelosi & Kevin McCarthy; Sens. Mitch McConnell & Chuck Schumer)
•Sen. Chris Coons (sent electronically)
•Chris Wallace of Fox News
•Acting OMB Director Russell Vought
•President Donald Trump
These letters are posted on this website, check them out. Do they make sense? Are they likely to resonate with the respective players? And if you readers approve, can you find ways to reinforce these efforts?
#No politico is in the mood to cut spending or raise taxes to 'balance'' the budget. There is no meaningful plan for this endorsed by Congress unless some document lies well buried in the archives of the right, but not the left. See the [House] Republican Study Committee budget for FY 2020, which was noted as a good effort in 8/19/19 blog entry (Section B).
Spending is the source of power in our government and no politico wants to give up any power. They buy votes with tax revenues and deficit spending. The deficit will remain high and the debt will increase by the deficit if not more. What about the success achieved during the Clinton era, when the budget was balanced (and the public debt fell) for 4 years running? – SAFE director