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.
The biggest task i think affecting everyone, from the little man to the big man, is that theres just so many of us now. And, we will all take a checklist of things to cut spending on, and things to increase spending on. And everyone's going to have a way to justify every single dollar of it. (with ignorance, arrogance, intelligence, calmness, and anger.) But, still, will try to prove they're right. So, i think the first question to the think tank, is how do we find the right justifications for our spending?
ReplyDeleteMy first idea, is to make the task smaller. baby steps people.
First, make a list of things that are untouchable as far as budget cuts. (make it 65% of the things currently spending money on)
Now, we're working with 35%. Some will say thats not enough. but the thing is it will be more than trying to solve the whole budget as one, and cuz we're narrowing down the topics, the conversations gonna get alot more direct.
Idea one.
Good luck Tim.
Hopefully we'll have our voices heard someday.
Smaller pieces is a great idea. I never really considered that, but now that I think about it, Congress often has the mentality of trying to do too much with one bill (Obamacare or the stimulus, for example, regardless of one's opinion of them, were gigantic bills). One massive spending reduction bill would get bogged down in Congress forever and nothing would get accomplished.
ReplyDeleteI think the right justification is shared sacrifice. If it gets pitched that way and an agenda is outlined that shows shared sacrifice, it'd be much more effective. Every demographic, every state, every town, everyone has to sacrifice a little something, and little things add up.
Also, I think Congress heard us loud and clear last election. Now we have to make sure we hold them accountable in 2012 and every election thereafter until they get our finances in order and keep them there.
Thanks for chiming in. :-)