In 2009 the federal deficit was 11.2 percent of GDP. And that was the deficit if you count the Social Security and other trust-fund surpluses as income, which the government does. The national debt in 2009 increased by 11.7 percent of GDP.
The reasons given for this enormous deficit are the financial crisis and the recession it caused. But the last year in which unemployment hit its current level of 10.2 percent, in 1982, the deficit was only 5.5 percent of GDP. In 1933, when a financial crisis was so severe that the president closed the country’s banks and the stock exchange remained closed for 10 days, the deficit was 4.61 percent of GDP. Only when the nation was fighting a great war has the deficit hit anything like its current level. In 1942, the deficit was 11.6 percent of GDP and reached 27.5 percent in 1943. Beginning in fiscal 1947, the first year of peace, the government began running surpluses (4.6 percent of GDP in 1948).
That’s not going to happen in the near future. The Congressional Budget Office projects that the federal deficit will decline from 11.2 percent of GDP this year to 9.6 percent in 2010, 6.1 percent in 2011, and 3.7 percent in 2012. The CBO foresees its remaining above 3 percent for as far as the green-shaded eye can see. If the economic projections of the CBO turn out to be even a little too optimistic (and they are, in reality, only guesses), it could be far worse.
In a new Newsweek article that is well worth reading, the distinguished economic historian Niall Ferguson discusses the possible consequences of a national debt that rises to a dangerous level. Those consequences aren’t pretty. As he points out, when interest payments on the debt of Great Powers have risen above 20 percent of government revenues, trouble has always been on the way. Thanks to very low interest rates right now, interest on the debt will be 8.38 percent of the budget in fiscal 2009. But interest rates are sure to rise if economic recovery is robust and the federal government (and other national governments) continues to run up big deficits. It is by no means unlikely that we could find ourselves at the danger level in another decade. In a decade after that, we could be going the way of 17th-century Spain, 18th-century France, and 20th-century Britain, with our power to protect American interests severely curtailed.
The public is aware of the situation and in poll after poll puts deficit reduction as its No. 1 priority. So what will the greatest deliberative body in the world — as the U.S. Senate loves to call itself — spend the month of December deliberating about? The greatest expansion of the federal government’s responsibilities since Lyndon Johnson left the White House 40 years ago.
The best argument against the health-care bill now before the Senate is, simply, that we can’t afford it. The public increasingly knows that. Why doesn’t the Senate?