Serious political talk centered last week on the latest Congressional Budget Office (CBO) report that warned of an oncoming “fiscal cliff” if the Bush tax cuts expire and previously agreed to spending cuts are implemented in January. The CBO estimates that if those two things occur, then the economy could plunge into another recession. Unemployment would hit 9 percent and the economy would shrink by 0.5 percent.
Frankly, I see no fiscal cliff in the CBO’s report if the spending reductions are enacted or even if the tax cuts expired. A rise in unemployment from 8.3 percent to 9.0 percent and an economic slowdown of less than one percent is in no way an economic crisis. The good news is the deficit would be cut nearly in half.
But the CBO analysis is flawed, given its findings, for it is the continued accumulation of massive deficits and debt that will drag us over the cliff. Our economic history does not show that cutting spending during hard times will cause a recession. It didn’t happen for Martin Van Buren, Grover Cleveland, or Warren Harding.
The treatment of public debt throughout American history was far different than today. We have always maintained, with just one exception, a certain level of national debt, though we always worked to pay it down when the period of accumulation ended.
It might be said that America was born in debt, amassing enormous burdens to win independence from Great Britain. From that point on, the nation seemed to follow the adage of Alexander Hamilton, who called a national debt, if not excessive, a “national blessing.” But even Hamilton would probably agree that our current national debt is not a blessing but a nightmare.
When faced with the young nation’s onerous debt, Hamilton, the first Treasury Secretary, crafted a plan to finance it and pay it off in 20 years. But periodic economic depressions and wars kept us from being free of debt during those first decades.
With the War of 1812, the debt and the deficit reached frightening proportions. The deficit itself hit a catastrophic level, equaling over 200 percent of the overall budget. If we ran such numbers today, our annual deficit would be more than $7 trillion. But as bad as those numbers were for the fledgling nation, by 1835, under Andrew Jackson, the debt was paid off completely.
The debt incurred by the War of Northern Aggression was also severe, more than $2.5 billion, a huge number for that time period. In 1861, the year the war began, the entire federal budget was just $80 million. But presidential administrations over the next 25 years began working diligently to pay down the debt, and by the early 1890s, it was below $1 billion. This was very easy to accomplish because every year from 1866 until 1893 the government ran a budget surplus.
When the nation’s second most destructive depression struck in 1893, because the debt had been greatly reduced, the government faced no major fiscal crisis and weathered the storm in a short period of time.
In the 19th century, borrowing and running deficits in troubled times, namely financial depressions and war, was generally to be expected, as it is now, but as soon as the crisis ended, the federal government instituted plans to begin paying down the debt. As a result, when the next crisis struck, the nation did not have an overwhelming debt load already sitting on the books. Earlier Americans used boom times to pay their bills and accumulate budget surpluses in order to be ready for the next bust they knew would come.
By contrast, today we spend and spend and spend, whether boom or bust. And we find ourselves in as bad a state of affairs as we have ever been. When the next crisis comes, and it could be just around the corner, our current debt load may be enough to sink us.
And should we sink, the blame must be laid at the feet of Barack Obama, especially if he is re-elected, for it is he who will give us more national debt than almost all previous presidents combined.
Though Obama and the Democrats are consistently blaming Bush and the Republicans for the deficits, the fact is that in fiscal year 2007, the last year when the GOP controlled the congressional purse strings, the annual deficit was $161 billion dollars. Today, it is nearly $100 billion a month!
As of this writing, our national debt totals nearly $16 trillion, that’s $16,000,000,000,000, and we are adding over $1 trillion every year under Obama. If continued in office, his budget plan will see the debt explode to $20 trillion by the end of 2016. That is simply unsustainable.
In the very near future we will be faced with a stark reality: massively raise taxes, institute large spending cuts, repudiate of some or all of the debt, or crank up the printing presses. Any of those choices would be a virtual declaration of bankruptcy. At that point, the dollar will be destroyed and with it the nation.
This column was published in the Laurel Leader Call (Laurel, MS) on Tuesday, August 29, 2012.