Since the Great Depression, but especially since WWII, the U.S. has continuously had very high debt, compared to previous history. But as it turns out, debt doesn’t really matter when the economy’s good (that’s a gross overstatement, coming from a complete neophyte in economics, but I think for the purposes of common understanding it’s pretty accurate). We totally spent way more than we had financing WWII, but actually that turned out to be a good thing because it lifted us out of the Depression. We’ve introduced social entitlements no one would have even thought was possible 75-100 years ago, like Social Security under FDR and Medicare and Medicaid under Johnson, but the debt continuously shrank until 1981, because the economy continued to grow. Even the relatively serious economic upheavals of the 1970s didn’t cause the debt to balloon. Up until 1981 it didn’t matter whether spendthrift liberals like Carter or LBJ or conservatives like Ike or Nixon were in office—the economy grew, the debt shrank.
It’s been a rollercoaster since 1981 though. The debt goes up almost 40% during the Bush-Reagan years, goes down 10% during Clinton’s two terms, starts to go up seriously again under Bush II, and has skyrocketed the past two years. (I reiterate that by “debt” I mean debt-vs-GDP, not the total amount of debt).
It’s easy to explain the Clinton shrinking debt and the Obama ballooning debt. Clinton presided over the cheeriest, most humming-along economy anyone can remember (it might have been the rosiest American economy ever for a period of five or six years). Everyone was making tons of dough, and the government was collecting it. As for Obama, we know what’s happening now—shrinking revenues from a completely stagnant economy, two foreign wars, and a string of insanely expensive bailouts and stimulus packages.
The Bush-Reagan years look weird, though. The economy was bad when Reagan took over, but it was pretty darn good from the mid-80s to early 90’s. The debt continued to grow, though. That one you can explain with the tax cuts. You can probably do the same with the Bush II years. So even when the economy is good, the government can still spend beyond its means.
One certain thing: in the past 30 years we haven’t once been able to control our budget unless the economy was strong. A good economy isn’t sufficient to control the debt, but it looks like it sure is necessary. Which is why I think the debt crisis thing is a bit of a sideshow. Sure, you can balance the budget and spend responsibly in a miserable economy. Just raise the tax rate to 50% and treat all of your citizens like they live in Indonesia. All of this talk about ‘permanently’ fixing the debt problem is so dumb. We can permanently fix the debt problem when everyone agrees we go back to 1780–no labor laws (and no way to enforce them), no unemployment benefits or welfare of any kind, no public education, and our Army is a bunch of volunteer militiamen who pay for their own bullets. If you want to live in any kind of approximation of the America we’ve grown accustomed to in the last seventy years, we’re going to have a debt problem. And that problem will grow until we get the economy back on track and find a way to fix the horrific boom-and-bust cycling we’ve seen over the past thirty years.
Which is why I don’t see the necessity of doing anything earth-shattering now. Control the spending; make cuts where you have to; retain as many services as you can. That we’ve endured the insanity and brinksmanship between Congress and the White House for the last two weeks and the markets haven’t budged says that people are at least thinking we will pull through this—or perhaps they’re even hoping that we do. Nobody’s going to be happy about downgrading the debt of the U.S.—we’re still everyone’s biggest customer. That might not always be true, but it’s true now.