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The Public and Deficit Spending
The last American President who paid off the national debt
Surprise, surprise. A new survey finds Americans don’t like most of the remedies being proposed to deal with the nation’s $14.2 trillion deficit. They strongly oppose any major changes to Medicare and don’t like big cuts in defense spending. The only thing they do approve of in large numbers is increased taxes on rich folks.
The poll by the Washington Post and ABC News seems to support the notion that Americans say they don’t like government all that much- until you start taking away the government goodies they like.
So leading up to the high drama of the vote expected in July on raising the national debt ceiling, polls like these underscore the high risks politicians are facing- especially those on the cutting side of the equation. As for higher taxes, the strong support for higher rates for those making over $250,000 a year is one thing. Higher taxes across the board are very unpopular.
So how do you deal with a public that finds the deficit troubling but isn’t enamored with most of the proposed solutions? Seems to me politicians are either going to pander which always seems to be their initial instinct- or you could split the differences- but that might involve both sides giving up their sacred cows. In other words, they may have to act like adults.
But is the situation as dire as most are now painting? Let’s put it this way, where was Standard and Poor’s in the late 1940’s when the percentage of the national debt compared to the Gross Domestic Product was around 40%? Because right now, huge as it is, that $14.2 trillion represents only 11% of the GDP. Standard and Poor’s says that’s enough to earn a “negative” rating on America’s future prospects as an investment. But it’s been way worse.
History finds that deficits…not balanced budgets are the norm. Posted on this couple of months ago. According to NPR’s Planet Money team- the last time the United States actually paid off all its debt was during the administration of Andrew Jackson. This would have been in the 1830’s.
Fact is, as much as the President and his political adversaries both pontificate about how government needs to balance its budget just as American families do- it’s a total crock. Governments are not families. Some argue a certain amount of deficit spending can actually be helpful. Banks make money. Government spending tends to keep the economic machine well greased. Societal needs like spending on highways and infrastructure and even health care- get met. Besides, even American families that balance their budgets think nothing of holding hundreds of thousands in debt on 50-year home mortgages.
The trick…as in just about everything in life…is doing things in moderation. Don’t expect any politician to make that case.
Deficits R Us- A Guide to the History of U.S. Deficit Spending
You would think with all the angst about government red ink, that this is, somehow, a new thing in the history of this country. There’s nothing new about it. For more than a century now, we have been in deficit 70% of the time.
I’ve referenced DaveManuel.com, a reputable newsletter on financial and Wall Street issues and trends. Here are their deficit stats .
Here’s the big chart that tells you our deficit history at a glance for the last 72 years, from 1940 through now:
That’s 60 years in the red and only 12 in the black. We had a better record of balanced budgets from 1900 to 1940; 18 years with a deficit, 20 without and 2 in which we broke even. Total record over 112 years:
78 years with a deficit
32 years in surplus
2 years in which we broke even
Now, I’m no economist and I’m sure my analysis is both amateurish and superficial. But there are several striking things that pop out at you when you overlay historical events over these deficit charts.
When did we have our longest periods of budget surpluses?
Well, we did quite nicely from 1920 to 1930. And we did well again from 1998 to 2001. What do these periods have in common? Boom times. When the economy was cranking along and people were getting rich left and right and government coffers were getting filled to the brim.
What about our worst periods of budget deficits?
The period of 1931 to 1946 was a bad 15-year stretch. Following the roaring 20’s of course, we hit the Great Depression and government spending increased dramatically to combat raging unemployment. On top of that, we funded World War II.
We had a brief period of balanced budgets in the late 1950’s and then went back into debt in a big way in the 1960s. History shows us Lyndon Johnson was leading the Great Society initiatives and funding the Vietnam War all at the same time.
In fact, from 1961 until 1997…there’s only been one year we had a balanced budget.
So we went through 4 years of surpluses in the late 90s/early 2000’s and then what happened?
Two things, we were attacked on 9/11 and the Republican version of LBJ. Instead of Great Society programs, it was across-the-board tax cuts and we funded two wars; Iraq and Afghanistan- all at the same time. And the next big spike? The financial collapse of 2007-2008.
When does deficit spending happen?
I see three basic circumstances at play that determine our national balance sheet.
1) When we’re in boom times we’re remarkably good at balancing budgets.
2) When wars and economic adversity hit, we spend like there’s no tomorrow but these are largely external events that we are reacting to.
3) When we fight wars and press for highly ideological agendas- like Democrats with the Great Society programs and Republicans with massive tax cuts. These are deficits (and some would argue wars- Vietnam and Iraq) of our choosing.
Are deficits dangerous?
They can be if they get past a critical percentage of the size of your total economy. The deficits we ran in the World War II era represented the largest percentage of deficits against GDP (Gross Domestic Product) in history; between 21% and 30%. Our current deficits, as big as they are, represent about 10% of our GDP.
Are we handing a history of deficits and doom to the next generation?
Yes and no. Lest you feel sorry for all the red ink we’re handing our children, history shows us they’ll be ok because they will spend what they have to on their unforeseen wars, economic calamities and favorite government programs and then hand off the ensuing debt to their offspring.
Garcia Media Life 
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