Commentary Magazine

The Debt Crisis Is Here

Wikipedia Commons.

Last Friday, September 8th, 2017, the national debt of the United States went over $20 trillion. This compares with an estimated GDP of $19.3 trillion. For the first time in 70 years, since the immediate aftermath of World War II, the national debt exceeds 100 percent of GDP.

In other words, in the last nine years, the federal government has borrowed more money than in the previous 219 years of the government’s existence. During those 219 years, we fought three wars of unprecedented size and ferocity, numerous small wars, and suffered through six deep and prolonged depressions, including the Great Depression of the 1930’s, the greatest economic catastrophe in American history.

In the Civil War, the national debt went from $60.8 million to $2.7 billion, but it saved the Union. In the 1930’s, the debt went from $16.1 billion to $42.9 billion, but it saved the American economy. In World War II, the debt went from $42.9 billion to $269.4 billion, but it saved western civilization.

But what have we gotten for this massive latter-day rise in public indebtedness?

Exactly nothing, unless vote-buying is a virtue. Since 1970—a near half century of no great wars, no deep and abiding depressions, and extended periods of great prosperity—the national debt has gone up by a factor of 54. GDP in that period rose by a factor of only 19.

Until the 1930’s deficit spending was regarded, by both parties, as an evil, if sometimes an unavoidable one. Once the cause of the deficit spending—wars and depressions—ended, the government paid down its debt as quickly as possible. It ran 28 successive annual budget surpluses after the Civil War, reducing the debt from $2.7 billion to $961 million, while the American economy soared. After World War I, we had 11 years of surpluses, reducing the total debt by nearly 40 percent.

After World War II, while we did not pay down the debt, its increase was sharply curtailed, rising from $269.4 billion in 1946 to $286 billion in 1960, an increase of only six percent. We even ran surpluses in 1951 and 1952, at the height of the Korean War. The American GDP in those years more than doubled. This reduced the debt as a percent of GDP (the important measure of the size of the debt) from 130 percent to 57.7 percent. The debt continued to decline as a percentage of GDP in the 1960’s to 37 percent.

But budgetary discipline vanished from Washington, D.C., with the so-called Budget Control Act of 1974. It effectively removed the president as a major player in making budget decisions. (He still submits a proposed budget every year, but Congress often declares it “dead on arrival.”) The budget was now in the hands of 535 members of Congress, not one of whom represented the national interest. Instead, they represented the parochial interests of 50 states and 435 districts. Those interests are served by ever-increasing flows of federal money. And politicians are always first, last, and always in the re-election business. Self-interest forces them to bring home the bacon.

Ending the seniority system, whereby the senior member of the majority party in each congressional committee was automatically chairman, greatly exacerbated the situation. The senior members were, almost by definition, in safe seats and so could exert spending discipline for the sake of the country as a whole. Elected chairmen had to promise goodies to get elected.

And so the United States went on a gigantic, four-decade-long spending spree, not to fight a great war or depression but largely to improve the re-election prospects of members of Congress. And they paid for it with our grandchildren’s money.

Are there solutions? Sure, and simple ones, too. But implementing them won’t be easy for they involve curbing the powers of politicians and political institutions. And as that great political scientist James Madison explained, “Men love power.” They don’t surrender it easily.

Choose your plan and pay nothing for six Weeks!

For a very limited time, we are extending a six-week free trial on both our subscription plans. Put your intellectual life in order while you can. This offer is also valid for existing subscribers wishing to purchase a gift subscription. Click here for more details.

6 weeks free! Then 29.99/year

6 weeks free! Then 19.99/year