The composition of the national debt is a complex history of policy decisions, governmental priorities and Congressional authorizations. Republican opponents of Pres. Obama have suggested that debt and deficits have “exploded” since he took office. They have sought to paint the president as a “tax and spend liberal”, because that accusation fits their standard campaign model.
But economists and budget analysts, including a top budget aide to Republican presidents Reagan and Bush, the elder, say Obama’s actual performance as president puts his budget policy in the “moderate conservative” segment of the fiscal policy spectrum. He has routinely demanded from Congress that major legislation be “paid for” or “deficit neutral”, and he has struggled mightily—putting aside his own policy priorities—to slow the expansion of deficits that stems from policies enacted by the previous administration.
Among these major policy drivers are the wars in Iraq and Afghanistan. The Bush administration simply never included either war in official budget projections, requiring Congress to fund both through “supplemental” spending agreements. The result was that two massive unfunded wars, each adding trillions to government spending, over a decade, were kept “off the books”.
Barack Obama—who voted to oppose raising the debt ceiling when he was a senator, in part because he believed the “off the books” accounting was going to bankrupt the government and pose a threat to the nation’s long term health and prosperity—viewed this as unethical and pledged to put the wars on the books, so the public, and the Congress, could more directly judge the costs and benefits of the wars and plan for the long term.
What is vitally important for all independent voters to understand is that while the debt debate has been laced-through with intense partisan rhetoric and vitriolic attacks, is that there are real drivers of the national debt, and they have little to do with socialism. The national debt is a product of patterns of borrowing that have soared over the last three decades, largely from one particular problem: the coincidence of relentless tax cutting with the need to fund existing programs and address real-world challenges.
In 1981, when Pres. Jimmy Carter left office, the national debt was under $1 trillion. By the time Pres. Ronald Reagan left office, in 1989, the national debt was close to $3 trillion. During Pres. George H.W. Bush’s first year in office, when the budget was Reagan’s last budget, the national debt broke $3 trillion.
The first Pres. Bush was a better debt manager than his immediate predecessor or his son; debt grew by roughly $1.4 trillion, during his 4 years in office. Pres. Clinton did a little better, adding about the same amount over 8 years. But Clinton achieved an important result: he left the government with projected budget surpluses exceeding the total national debt, over the coming decade.
Pres. George W. Bush took office in 2001 with those surpluses in place. His 2001 tax cut, however, reversed the entire surplus, and by the time of his reelection in 2004, he added to the (once again) growing debt another $1.7 trillion. By the time he left office in 2009, the national debt had escalated to over $10 trillion, and the debt ceiling was already primed for another $2 trillion in borrowing.
That extra $2 trillion in borrowing was necessary, to pay for spending already “in the pipeline”, already passed into law and on the federal books, either as part of the official budget or supplemental spending. By the end of 2009, with George W. Bush’s last annual budget playing out, the national debt was at $12 trillion. It would be mid 2010, before the active federal budget was “owned” by Obama.
As of this writing, the policies of George W. Bush have added fully $7 trillion to the national debt. Since then, Pres. Obama’s policies have added another $1.4 trillion, and already planned spending policy, historically low government tax revenues and the economic reality of tight credit, slow growth and lagging job creation, makes it very difficult for him for him to cut spending to a level where he would be able to match Pres. Bush, the elder and Pres. Clinton, in managing the national debt.
His record on budgets has been one of reformer: he has consistently favored institutional reforms that impose real cuts, and bend cost growth down to match or fall below inflation. But reducing spending can reduce national economic growth as well, further straining the national debt trend lines.
What Pres. George H.W. Bush and Pres. Clinton were able to manage was a cooperative Congressional environment, in which tough bargains were made with rivals in Congress. Pres. Obama has not had that luxury, and it may be he will not have it. There are growing tensions in the Republican party, resulting from real disagreement about whether budget and debt should be used for partisan strategy or whether they should be non-partisan policy items, with all voting in favor of the national interest.
Independent voters are looking for sanity. We are looking for reason and clarity. We are looking for long-term policy decisions that help steer the nation toward prosperity and sustainable, generalized economic wellbeing. We need a balanced standard for budget policy, where revenues increase to meet costs, so the United States remains the world’s leading fiscal policy driver and the dollar remains the world’s reserve currency.
There is opportunity in the budget policy negotiations, but the opportunity will be missed, if one or both sides refuse to use the negotiations to reach a constructive, well-designed, well-funded, rational policy on national community reinvestment, infrastructure upgrades, education and new revenues capable of meeting our needs and our aims.
6 responses to The Drivers of National Debt
Another great Article J.E. You are right on the money and fair in your assessment of the overall problem. Another major point is the lack of focus on primary production or conversely the continued policy of increasing costs on companies in the U.S. drove our non-competitive economic bases to over $11 Trillion accumulated trade deficit. Like everything else this was a net reduction to the U.S. Economy during the period.
Finally the policy of back end funding by increasing the money supply has furthered the hole we are in. Now we are at a point that a fundamental restructuring of all of our entire economy is necessary or no one thing will solve for the significant others.
We can borrow more money and levy the US economy to pay principle and interest but we drive up our costs, which in turn make our production less competitive and that drive up net imports increasing the drain on our net economic worth.
We need to change our industrial cost structures to be competitive in this one world economy and change the nature of the industries we participate in to drive much higher retained margin.
Nowhere is there a simple fix for us at this point.
By the way I invite you to become a Mugwump. I will be launching a website and forum in the next couple of weeks so stay tuned. I would love to have you participate as I think you are a Mugwump.
As always, your comments are welcome and insightful. I am intrigued by your Mugwump forum, and will be waiting to see it go live. As for whether I am, I suppose that has to do with whether we go back to the Algonquin, whether we talk about the rejection of partisanship-first politics, or whether we are talking about something somehow less flattering. For now, I’ll take it as a vote of confidence.
On borrowing costs: I think it is clear that we cannot afford to devote massive amounts of people’s hard-earned revenues to paying foreign creditors; it makes little sense in the long run, but somehow, politicians find it convenient to pay for tax cuts with borrowing. We may just be coming to awareness of how ill-suited a strategy that is for the complex landscape of the global 21st century.
I do think, however, that we have a lot of opportunity in all of these challenges, and that if we can devote enough time, enough thought and enough treasure to really motivating infrastructure investment, clean energy and the decentralization of capital flows, in our society, we can capture the 21st century’s economic momentum. There are very real, and very smart things we can do, but we have to end our addiction to the myth of automatic wealth.
Let us know about the Mugwump forum; maybe we can do a piece on it here…
You left out one very important point. That is that the “projected surpluses” never appeared because the Democrats had increased spending for that fiscal year. Therfore when Bush came in we had a recession. Thereason forlowering taxes as youI know was to get the country moving again after 9/11. They did not cause the financial crisis that was created by the housing bubble created by Clinton & the Dems forceing banks togive laons to people would couln’t afford them under the community reinvestment act of ’93.
A few points:
1) the 2001 recession was not linked to spending—spending has never caused a recession—but to the collapse of the dot-com stock bubble;
2) Bush’s tax cuts were part of his campaign platform, and they went through in the spring of 2001, long before there was a need to recover from 9/11;
3) the financial crisis of 2007-2009 was caused by what might best be called “unfunded derivatives”—financial instruments based on value that was never really there;
4) the housing bubble was not caused or burst by low-income single-home buyers, but by high-end derivatives trading, which collapsed when soaring home prices could not be sustained;
5) that bailed-out banks want you to believe it was poor people who caused the high-end financial crisis is just a reflection of their desire to not deal with low-margin accounts.
My guess is that your unnamed top Republican economist is Bruce Bartlett. He is a good economist in being able to understand that economic theories may be effective in some circumstances but when those circumstances change, they may become no longer helpful and even harmful.
There’s a way forward to re-inflate housing and recover some jobs without taking more debt, without raising or lowering taxes. It is indicated in Warren Mosler’s “The 7 Deadly Innocent Frauds of Economic Theory,” available free, online and in monetary theorists works like those of Steve Zarlenga and Ellen Brown.
This way would be for the government, in an “emergency situation,” assuming agreement that this ” War and Deficit” situation,is one, to create sufficient greenbacks, government money without debt and spend it into the economy, starting in formerly “hot” real estate areas to buy at discount, from bank REO inventories, mortgages on unoccupied and occupied but “underwater” homes. A government agency could then rent them to own by occupants or new renters. Other greenbacks could be used to grant unemployed occupant breadwinners temporary but decently paid, even low productivity, public service jobs so they can pay the rent.
The financiers destroyed about $13 trillion in household wealth. Businesses then extinguished about 8.5 million jobs. The Federal Reserve has offered financier institutions about $16 trillion credit assistance. But puny “stimuli,” $152 billion (Bush ) and $787 billion (Obama) bills couldn’t possibly replace that to restart effective demand.
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