Let’s start by making sure we all know that our National Debt is the total amount of money our country owes right now – we borrowed it
and we haven’t paid it back. The National Debt is not the same thing as a deficit because it is cumulative and a deficit is an annual measure – A surplus is also an annual measure. So the National Debt grows or shrinks based on our total deficit or surplus spending each year. We use “total” here because it includes off-budget expenditures such as spending on intelligence operations.
The factoids I am going to present are all based on data taken from the Statistical Abstract of the United States which is published by the U.S. Census Bureau.
You might be surprised to learn that the United States has always had a National Debt. That’s right, the data going all the way back to 1791 shows we have always been in debt. It started when we borrowed money from a variety of sources to pay for the Revolutionary War. In the early years the amount of our National Debt was less than one hundred million dollars and at one point in 1834-1835 we got it down to less than forty thousand dollars, but we have always carried a debt.
The next thing to look at is the question of annual deficits and surpluses. Of the two hundred and twenty one years for which I have data, we have run a deficit during one hundred and twenty seven of those years, we ran a surplus during ninety three of those years and there was one year when we balanced exactly. It is fair to say that sometimes the deficit or surplus was large and sometimes it was small so the impact on our National Debt didn’t always make headlines.
The next comparisons will stray into the land of the political and our current political parties have direct roots back to 1860 so that is where we’ll start. The Democrat party roots extend back further, but we need to compare apples and apples so let’s use 1860 to 2011, a span of one hundred and fifty one years.
We often hear conversations which relate our National Debt to our Gross Domestic Product (the size of our annual economy). It is never clear just what these experts would have us take away from their presentation so let’s just call it a factoid. Even so, during forty four years our National
Debt exceeded fifty percent of our GDP and there were ten years when it exceeded seventy five percent of GDP. We may not understand the economists, but we can take some comfort from the fact that during those years the sky did not fall. If we are honest with ourselves, the fact that the sky did not fall may be part of the current problem because those who are more tolerant of deficit spending use this fact as proof that their plan is not the problem that the deficit hawks believe it to be.
During the one hundred and fifty one years since 1860, our Federal spending has been in deficit for one hundred of those years and in surplus for fifty one. If we examine just the surplus years, we find that the Republicans held the White House and a majority in both the House and the Senate during thirty four of those years and the Democrats held them for only four. A similar examination of the deficit years shows the Republicans in control of the White House and the Legislative Branch during twenty seven of those years and the Democrats having control of all three in thirty seven. The remaining years were years when the control was divided between the two political parties. Clearly, both of our current political parties have participated in our current National Debt situation so we won’t let either of them off the hook.
Now let’s turn to the current conversation about the size of our National Debt and whether it is necessary to initiate austerity measures to
get it under control. We constantly hear the sound bite that says “We don’t have a revenue problem – we have a spending problem.” We also hear how much of our National Debt each of us are theoretically responsible for and that number is north of forty thousand dollars. Both make catchy sound bites, but what are the facts? First, we are definitely spending more than we take in in revenue and at the minimum
that should be causing us to do some belt tightening, but until the sequester took effect we weren’t tightening much of anything. Second, dividing the National Debt by the population may be amusing for some, but we won’t personally be visited by the collection agency asking us to pay up so there isn’t much value in that part of the conversation. Third, it is the Legislative Branch that has the final decision on how much to spend and where to spend it. All matters of money start in the House of Representatives, but the Senate must agree if the matter is to become law. Fourth, Social Security is totally funded by dedicated payroll taxes and is not contributing to our National Debt in any way. In fact, the excess funds in the Social Security Trust Fund have been loaned to the General Fund for years to avoid the need to sell Treasury Bonds in the financial market. We don’t hear the politicians talking about how the General Fund owes money to the Social Security Trust Fund because it will be painful to borrow in the marketplace just to pay back that part of the debt. Fifth, The Medicare program is not quite as self-sufficient, but it is also funded partly by dedicated payroll taxes.
So, when is the National Debt too large? The only real answer is that the National Debt is too large when we can’t find anyone to purchase our Treasury Bonds and that is not our current situation. You can see how this situation is a problem because we won’t really know until we have crossed the line, that we have crossed the line. You can also see how being in that situation will require fast, painful cuts in government services in an attempt to claw our way out of trouble.
The line we are talking about is not a clear, bright line that is always in the same place – an exact amount of money. No, the line is a measure of confidence in the financial markets of the world that we will pay our debts. If the investors of the world believe we are a good credit risk, they will be willing to buy our Treasury bonds. If the investors of the world believe we may not pay our debts, they will either demand higher interest rates on our debt or not buy our Treasury Bonds at any price – we would be in a crisis of confidence.
Since investor confidence is the essential part of our ability to manage our National Debt, you can see why anything that impacts that
confidence in a negative way causes great concern. Arguably, a crisis of confidence could move that line to a point below our current National Debt level and we would find ourselves needing to make those fast, painful cuts that would hurt everyone in one way or another. The time for managing our way out of trouble would be lost to our inability to compromise and that brings us to the point of this posting.
The current crop of elected ideologues is refusing to compromise. The Conservatives refuse to consider any new revenue which is essential to the maintenance of some of our current government services. The Progressives refuse to consider an “all cuts” approach and are especially resistant to any cuts to the “entitlements” (read that Social Security, Medicare and Medicaid). To make matters worse, failure to compromise simply keeps moving us closer and closer to that line where we don’t want to be – the line where the crisis of confidence in the financial markets becomes real, and immediate, and painful, and goes beyond “all cuts” to a need for deeper austerity cuts and new revenue right now!
When ships move on the ocean, they often get close to each other. Since there are no center lines on the nautical highway, there are different ways to keep ships from running into each other. The rules of the nautical road define a situation called “extremis” when the actions of one vessel alone can no longer avoid a collision. When it comes to our current National Debt, we have reached a point of “extremis” and that means that compromise is the only way out.
I have written it before and it bears repeating here that there is no democracy where there is no compromise.
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