The US Debt: A Short Historical and Current Perspective

The US debt is now over $14 trillion. Congress is now going to have to debate whether or not to raise the government debt ceiling. By law, the government can only have so much debt, but the government can increase the debt ceiling. I’d like to give some perspective on the matter. Note that I’m only talking government debt. Private debt (businesses and individuals) is a whole other beast.

Congress could make a very easy tweak that would make it so that we don’t have to raise the debt ceiling every couple years. It is expressed as an absolute dollar amount, and that’s the problem. I recommend expressing the law instead as a maximum ratio of debt to GDP. This matters more. This allows growth to be considered instead of just using some arbitrary increase over where we currently are.

I suggest a debt/GDP maximum of 90% because this is the level I’ve seen shown to be the breaking point, meaning that once you get above it, trouble can follow. Right now, we’re right around 100%. See the chart below, courtesy of http://www.usgovernmentspending.com/ and please indulge my upcoming tangents.




We see a start around 35% in 1792 due to the Revolutionary War. We see big jumps due to the War of 1812, Civil War, and World War 1. We were actually in the black in the mid 1830’s with a zero debt/GDP.

It’s also interesting to note that debt/GDP was steadily at its lowest in the couple decades before the Civil War and in the time between the Civil War and World War 1 (stable, but higher following the Civil War). These are when I hear (and oppose) the argument that capitalism and the Industrial Revolution were running amok destroying America.

We then witness a leap and a bigger leap, the former due to Hoover’s and FDR’s policies to combat the Great Depression (in my view, they not only failed to end the Great Depression, but actually worsened it) and the latter due to World War 2. Also, note that it wasn’t until the Great Depression that we returned to the 35% we were at in 1792. We came close a couple times along the way. Furthermore, aside from the 1970’s we’ve yet to dip below that 35% level since we crossed over it.

After the World War 2 peak, we drifted lower until Reagan’s presidency. When Reagan took power in 1981, we were around 32% debt/GDP, down from 121% in 1946. When Reagan left in 1989, we were up around 52%. Reagan tripled our debt from just under $1T to about $3T and debt/GDP increased. Yes, Reagan racked up twice as much debt as every other previous president COMBINED. That said, Reagan’s spending was good debt. His defense spending laid the foundation for our Cold War victory and his tax cuts laid the foundation for our economic rise out of the 1970’s stagflationary period.

We crept up to 64% debt/GDP during Papa Bush’s presidency due to Iraq War 1. Then, we peaked at 67% in 1995 and drifted steadily lower under Clinton, landing as low as 56% in 2001. The debt increased roughly 50% from $3T to $5T during Papa Bush’s and Clinton’s presidencies.

Junior Bush comes in and between 9/11, Afghanistan, and Iraq, we crept higher again, coming in at 64% in 2007. The economic collapse of 2007-08 hits and it jumps to 69% in 2008. Junior Bush doubled the debt from roughly $5T to $10T, meaning he racked up about as much debt as every other previous president COMBINED.

In 2009, we made a double-digit leap in debt/GDP and in 2010, we did it again according to the projections. In two years, Obama took the debt from $10T to $14T. Obama added nearly as much debt in two years as Junior Bush did in eight years.

I’d also argue that Obama’s spending has been ineffective. The following quote sums it up.

“We have tried spending money. We are spending more than we have ever spent before and it does not work. […] We have just as much unemployment as when we started, and an enormous debt to boot!”

Henry Morgenthau, FDR’s Treasury secretary, in 1939, near the end of FDR’s second term, said that. If I didn’t tell you that, you’d swear it was from the present day.

This is my long-winded way of showing where we currently stand and saying we need to get the debt under control. I’ve no shortage of ideas.

State of the Union Review Part 2

President Obama gave the State of the Union (SOTU) address last night, with Representative Paul Ryan giving the GOP response and Representative Michele Bachmann giving the Tea Party response. Part 1 focuses on Obama’s address while Part 2 focuses on Ryan’s and Bachmann’s statements. Welcome to Part 2.

Let me start by saying that I found it very peculiar that there was both a GOP and a Tea Party response. I don’t recall the last time we had two responses to the SOTU, but it was weird to me. Clearly, this benefits the Tea Party more than the GOP because it helps keep the Tea Party visible and relevant while simultaneously making the Tea Party look equal to the GOP in size and influence. Certainly, the GOP was not pleased with this development because the strength the Tea Party exudes from this comes at the expense of the GOP’s own strength. In the end, this will be a good thing for the GOP in 2012 because the Tea Party has energized the conservative movement and that energy from 2010 would probably carry over to 2012.

This assumes the Tea Party does not decide to field its own presidential ticket. If they do, then all bets are off and everything changes. A Tea Party ticket would not be a good thing for the GOP. If history is any indication, that would effectively hand Obama victory in 2012. Historically, when a third-party candidate emerges from the left of the democrats or the right of the GOP, the candidate of the undivided party wins due to the schism in the opposing party. So, if the GOP is split, the democrat wins, and if the democrats are split, the GOP wins.

We saw this with Bill Clinton in 1992. In my view, Papa Bush would almost certainly have won in 1992 if not for Ross Perot. We can also go back to 1968, when George Wallace ran as a third-party candidate, causing the schism in the democrat party that gave Richard Nixon and the GOP the presidency. 1912 is another famous example, when democrat Woodrow Wilson benefitted from the schism in the GOP involving republican Howard Taft and progressive Theodore Roosevelt (who was a republican when he was William McKinley’s vice president and when Teddy himself was president). There are a few other examples throughout the 20th century, but these were the most notable. Also, there were plenty of examples before 1912, but I’ve already veered far enough off topic.

The speeches themselves further confound me as to the reason they felt the need to issue separate responses. I found the speeches to be fairly similar in content and feel, so I didn’t find a whole lot to differentiate one from the other. Both hammered home the themes of individual freedom, limited government, spending reductions, tax cuts, and the will of the people. Bachmann’s response was slightly to the right politically of Ryan’s response, but that’s to be expected. Neither of them strike me as compelling speakers, even when shown in a vacuum, but especially when held next to Obama at his best in a more inspirational, thematic/theatrical setting. Generally, that’s the case because you’d typically need a president to give an exceptionally bad SOTU and you’d need the response to be exceptionally good if you’re looking for the response to trump the SOTU itself.

Both speeches had teeth and definitely got shots in at Obama and the democrats. Again, that’s to be expected. They were highlighting the paradox of debt reduction and increased spending that I discussed in Part 1. They also took their shots at Obamacare, calling for its repeal and replacement with a series of non-specific reforms that make healthcare more patient-focused and less expensive. Similar to Obama’s SOTU, both speeches were more inspirational and thematic, again more like pep rallies than actual plans.

I found it interesting that neither the GOP nor the Tea Party really tried to hammer Obama on foreign policy, social security, and energy, three issues I highlighted in Part 1 that I thought Obama left himself vulnerable to attack on. I thought for sure at least one of them would attack on at least one of those. It was also a very wise decision on the part of both speakers to avoid the gun control issue.

Bottom line, the responses themselves weren’t anything special, but the fact that there were two of them was something special.

State of the Union Review Part 1

President Obama gave the State of the Union (SOTU) address last night, with Representative Paul Ryan giving the GOP response and Representative Michele Bachmann giving the Tea Party response. Part 1 focuses on Obama while Part 2 focuses on Ryan and Bachmann.

First, some general impressions. On the whole, I thought Obama gave a good speech. It was different than most previous SOTUs we’ve seen recently. Obama spent much more time talking about broader themes for America as opposed to spending most of the time discussing concrete agenda items. My girlfriend described it as more like a pep rally than a plan, and I think she’s right. Whether you agree with his views or not, one has to admit that when Obama’ speaking in more abstract, thematic terms, he’s a darn good speaker and very inspiring. Last night, that was prominently on display.

And there was a little humor, too. The best zinger of the night was the tidbit about freshwater salmon and Interior versus saltwater salmon and Commerce. I was simultaneously amused and saddened.

From a political strategy perspective, he did masterfully last night. Make no mistake about it, Obama is in reelection mode. One could argue that a first-term president (or any politician not in their last term, be it due to term limits or retirement) is always in reelection mode, and I’d agree, however, it’s more apparent and urgent now than it was in the first two years of his presidency and will only escalate between now and election day 2012. Not only did he succeed at getting back to his speaking strength of abstract inspiration versus concrete plans, but he also did a great job of undercutting the GOP on several of its core issues (and getting his jabs in at them), including medical malpractice lawsuit reform, the 1099 rule in Obamacare, corporate tax rate cuts, tax code simplification, and, most importantly, deficit reduction.

Next, some specific grievances. I have two major grievances. First, he came across as timid and indecisive when discussing foreign policy. I don’t know what it is, but I personally have a hard time taking Obama seriously when he tries to talk tough. I’m not sure if that’s Obama-specific or a broader stroke on democrats in general, but I just didn’t get the vibe of strength last night.

Second was his handling of social security. Not only did he really gloss over this issue by giving it a couple sentences of lip service, but what he said made it very clear that he doesn’t favor meaningful reform to social security. I still don’t think Obama understands just how big of a problem social security really is, and I also don’t think he grasps that the longer we leave it unaddressed, the worse it gets, two points I’ve been harping on over the past decade or so. He’s clearly not in favor of privatization, which I’ll advocate for in some upcoming posts.

Energy policy was a mixed bag to me. On one hand, he counted nuclear in his clean energy list. I find that extremely encouraging because Obama mentioning it positively shows that maybe the left is starting to come around to a more favorable view of nuclear power. On the other hand, oil and coal were not so lucky. Obama came out swinging at them, particularly oil. As I’ve previously outlined, reducing domestic oil production, as Obama clearly wants to do, is a terrible idea if you’re even remotely concerned about improving the US economy and national security.

Also in the mixed bag is how Obama talked about simultaneously cutting spending to get the debt under control and increasing spending in investments like infrastructure, education, and green energy. This feels like political double-speak to me where, if Obama’s first two years are any indication, the former will take a back seat to the latter. I’ve got more upcoming stuff about debt and GDP, too.

Last, some specific praise (so I end on a positive note). First, I was happy not to see him mention gun control last night. I know it’s going to come up sometime soon, but I’m glad to see it wasn’t last night. I think we’re still a bit shellshocked from the Arizona shooting because it was so recent. Second, Obama mentioned corporate tax cuts. This is something that absolutely must happen if America is to attract businesses.

Overall, it was a little light on specifics for my taste, but still a solid speech with something for everybody.

China and America in 2011

President Obama is hosting China’s president, Hu Jintao, this week in Washington DC. We have a complicated relationship with China. There are a lot of sticky issues including:

-Intellectual property. The Chinese want our technology and will do anything to get it. They’ll steal it outright, displaying little regard for intellectual property law. For example, Microsoft’s CEO, Steve Ballmer, estimates that only 10% of Windows software packages in China were purchased legally. If they don’t steal it outright, they’ll get it through joint ventures with American companies. General Electric announced one this week with AVIC (Aviation Industry Corporation of China), granting AVIC access to GE’s avionics technology. General Motors did a similar deal with SAIC Motor Corporation. As a last resort (for now), China could buy whatever they can’t get through theft or joint venture. Intellectual property is a central theme in the next two issues on my list.

-Military build-up. China is aggressively expanding their military and recently has shown signs of catching up to our military technology. China unveiled its J-20 fighter, designed to challenge our F-22 Raptor. It’s not there yet. We’re making it easier for them to catch up because, in addition to the IP issues I mentioned above, we’re not pushing military technological advancement as aggressively as we should. This technological advancement is allowing the Chinese to become bolder in foreign policy and assert themselves more in their East Asia sphere of influence.

-Economic expansion. Chinese acquisition of American technology doesn’t just allow them to catch up to us militarily, but also economically. American technology plus government backing helps them compete against us. If they don’t have to spend billions in research and development and they don’t have to pay their workers as much as we do, they’ll naturally be able to undercut us on price. As with military technology, China’s not quite there yet, but they’re gaining.

-Rare earth metals. These are used heavily throughout industry. China cut its export quotas by 35% last month. Even though China has only 37% of the world’s proven reserves, it provides 97% of the world’s supply. It claims this reduction is due to higher domestic use, but it could also be China flexing its political muscle. Our lack of domestic development, despite having ample domestic resources, leaves us vulnerable to cost surges and/or supply shortfalls.

-Currency and trade. Both China and the US accuse the other of currency manipulation, and both are right, in my opinion. The Chinese peg of the yuan to the dollar is keeping the yuan (aka renminbi) lower than it likely naturally should be. This is a mixed blessing for America. The negative for us is it makes Chinese imports cheaper, thereby giving them a competitive edge against our products. The positive for us is because Chinese imports are cheaper, it saves our consumers money (Wal-Mart deserves much credit here, too). Thus, if we push too aggressively for yuan appreciation, it may actually hurt us more than help us. Likewise, the USA has been practicing a weak dollar policy to strengthen our own exporting power, but also to inflate our way out of debt.

-Human rights. Issues like free speech and religion, censorship, and China’s one-child policy come to mind. The US and China view human rights differently, and both must recognize this. We see it more as a civil and legal issue whereas China sees it more as an economic issue. The US values individual freedom over harmony while China values harmony over individual freedom.

The bottom line is the whole world has to decide how to cope with China’s expansion. A balance must be struck between allowing for Chinese expansion and ensuring our economic and military well-being. I’d like to see it thrive as a peaceful, mutually-beneficial relationship. But, we can’t just concede our spot as the top global economic and military superpower, either. I hope history doesn’t repeat itself. Two scenarios worry me.

The first scenario is a Germany scenario, leading to war. I’ve long believed that throughout 20th century, the rest of Europe was unable to cope with Germany’s economic and military expansion, thereby leading to two world wars and a carved-up Germany.

The second scenario is a Russia scenario, leading to a Cold War. Following World War 2, the US and Russia were the two remaining superpowers as the rest of the world was decimated or not yet developed. We never fought each other directly, just by proxy.

I’ll discuss these parallels I see another time.

Pondering the Arizona Tragedy

The shooting in Arizona has been all over the news, as it rightly should be. I’m not going into the details, but like everything else, I have thoughts on it I’d like to share.

The mainstream media and Washington DC are completely missing the point, to nobody’s surprise. This is about the victims and their families. We can’t lose sight of that. The victims and their families would hope that something good can come from their pain.

I’d like to see the nation realize that our political process is dysfunctional. We demonize those who disagree with us. There was rabid anger from the liberals during George W. Bush’s presidency and there’s now rabid anger from the conservatives during Barack Obama’s presidency. It’s truly toxic stuff and it creates a raging atmosphere. I’ve seen signs comparing both Bush and Obama to Hitler. That’s uncalled for and counterproductive.

The way I see it, the question isn’t, “Can I say something?” The answer is very often yes, you can say it. To suggest otherwise is an attack on the 1st amendment. The question instead is, “Should I say something?” This was part of the point of the Rally to Restore Sanity I attended last year.

In my experience, if you’re trying to get someone to agree with you and that person doesn’t already agree with you, insulting them will not help your cause. It will make the person dig in more and probably not like you too much, either. On the other hand, it’s much more effective to present a logical argument that strengthens your points and weakens theirs while suppressing the desire to call the other person a [insert insult here].

I think it’s possible that something good will come out of this, but right now the media and politicians aren’t helping.

The liberal networks are blaming the conservatives, mainly Sarah Palin. Fairly or not, the liberal media can’t resist an opportunity to attack Palin, so they trotted out Palin’s map with the crosshairs and said that is enough to make Palin responsible. This is pure nonsense. Palin is not the only person to use gun rhetoric in political discourse. In Palin’s defense, the conservative media quickly points out Barack Obama saying, “If they bring a knife to the fight, we bring a gun,” and this makes me think blaming Palin is way off-base.

That said, Palin’s defense was as nonsensical as the accusation. Her people claimed the symbols on the map were surveyor symbols instead of crosshairs, which is pretty laughable. But, wait, there’s more. Palin also mentioned the term ‘blood libel’ in her statements, and this was not a prudent thing to say. For those unfamiliar with the term, blood libel refers to the accusation, starting in medieval Europe, that Jewish people would take the blood of Christian children. These accusations were quite often baseless and many innocent Jewish people were murdered as a result. Think of it like an earlier version of the Salem witch hunts in colonial America. I’m not Jewish, but I couldn’t blame any Jewish people for being a bit irked by such a ridiculous comparison.

The main point is both the liberal and conservative media have allowed this to be about Sarah Palin instead of the victims. As I said above, the politicians are equally clueless. They have a bad mentality here. First, they don’t ever want to let any crisis go to waste. Second, they think legislation can solve every problem. Third, they tend to fight the last war. Here are a couple examples.

The 1st amendment is under attack from Representative Bob Brady (D, PA), who wants to outlaw the use of certain imagery when describing politicians and judges. So, would the government read everything on the internet all day, every day? And how arbitrary would the standards be for determining legality of speech? It’s a bad bill, plain and simple.

Don’t worry, 2nd amendment fans. It’s under attack, too. Representative Peter King (R, NY) is calling for a law to make it illegal to have a gun within 1,000 feet of a politician. Again, how would that be enforced? Everybody would have to know at all times where every politician is so they wouldn’t violate the 1,000 feet on the way to the shooting range. Broadcasting such information to the world is foolishness. Al Qaeda would love it. This is another bad bill.

The American people know what really matters here, and I hope the media and politicians realize it, too.

The Constitution in the News

The Constitution has been in the news a lot this week. The first act of the new GOP House of Representatives this week was to read the entire Constitution out loud on the House floor, for the very first time, no less. It’s about darn time. The Constitution tops my list of mandatory reading for all Americans, especially for elected/nominated/appointed leaders and political commentators.

So how relevant is the Constitution to the present day? Let’s be real here. The Constitution is the supreme law of the land. It says so right in Article 6.

“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land.”

So, if it’s the supreme law of the land, why doesn’t it feel that way? I’ve got some thoughts on that, too. I think people tend to champion the Constitution only when it’s convenient for them to do so, and ignore it when it’s inconvenient. I find both liberals and conservatives are guilty of this.

For instance, conservatives and republicans eagerly embrace the 2nd amendment, (“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”). However, they also say the Constitution forbids anything besides gold and silver as money. They neglect to mention that the excerpt in question appears in Article 1, Section 10 (Powers Prohibited of States), and reads, “No State shall […] coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;.” There is nothing in the Constitution that forbids the federal government from making paper money. Furthermore, the Constitution clearly says the federal government is empowered to do so. Article 1, Section 8 empowers Congress to, “Coin money [and] regulate the value thereof.”

On the flip side, liberals and democrats love the General Welfare Clause of Article 1, Section 8 (“The Congress shall have Power to […] provide for the […] general welfare of the United States.”). Most likely, this is the Constitutional justification they use for their more progressive measures, such as Obamacare and numerous initiatives of yesteryear from LBJ’s Great Society or FDR’s New Deal. However, in implementing many of these initiatives, they have demonstrated a total disregard for the 10th amendment (“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”).

The 14th amendment presents a unique example. Both conservatives and liberals champion this amendment when it’s convenient and ignore it when it’s not. Here’s section 1.

“All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

To the delight of liberals everywhere, and to the disdain of conservatives, I’ve used this excerpt to justify my argument for equal legal rights for homosexuals, and that can be found here.

However, I score points with conservatives and lose them with liberals when I use this very same excerpt in the illegal immigration debate. Liberals use the, “All persons born or naturalized in the United States,” section to say that anybody born in the USA is automatically a citizen of the USA, whether that person’s parents are American citizens or not. However, they ignore the next bit, “And subject to the jurisdiction thereof.” This second bit tells me that if the parents are here illegally or otherwise not citizens of the USA, then they are not technically subject to the jurisdiction of the USA. If they are not subject to the jurisdiction of the USA, neither are their children. On a side note, there’s no legal precedent establishing the principle the liberals try to justify.

I want to see the Constitution restored to its rightful place as the centerpiece of our legal and political establishment, but today’s selective application of the document prevents constitutionalism from truly flourishing.

Links: http://timsopinionblog.blogspot.com/2010/11/reframing-gay-marriage-discussion.html