How America Got So Deeply in Debt

Federal budget deficits and the soaring national debt are now very much in the news, and they have become a major concern for many Americans. That is good, but the question I would like to shout out from the mountain top is, where have all these journalists and concerned Americans been for the past 28 years? They are a quarter-century too late to nip the problem in the bud.

In 1981, the public debt reached $1 trillion for the first time ever. It had taken 200 years, and the combined deficits of all the presidents from George Washington through Jimmy Carter, to accumulate that first $1 trillion. But then, the nation threw caution to the wind and began traveling a course that would eventually lead it to the brink of national bankruptcy. Just during the next 12 years, the debt skyrocketed from the $1 trillion, that took 200 years to accumulate, to an astronomical $4 trillion!

Where were all the critics of big deficits at that time, when they were so badly needed? I was a critic during those years, but I certainly didn’t have much company. In addition to verbally screaming out warnings to anyone who would listen during the 1980s, I began writing a self-syndicated weekly newspaper column, in 1990, called “Economic Alert,” that appeared in 30 papers with a combined circulation of approximately one million readers. In almost every column, I warned readers about the disastrous economic path the nation was following. But nobody likes a messenger with bad news, so I became a target of those who didn’t want the American people to know about the huge deficits and skyrocketing national debt that were resulting from the practice of Reaganomics.

I got many hostile letters from Reagan-Bush supporters. I was labeled a “Bush basher,” and I was called “un-American,” a “Marxist,” and numerous other choice names. Letters to the editor of newspapers that carried my column urged the newspapers to stop running the column, and some did. I was amazed at the hostility that came my way simply because I was pointing out the flaws of Reaganomics and warning that a day of reckoning would eventually come, if we didn’t change course.

When Bill Clinton became president, he pushed a deficit-reduction package through Congress, that included both higher taxes and cuts in government spending. The deficits gradually diminished during Clinton’s first six years, and, during the last two Clinton years, the nation experienced small budget surpluses, after 38 consecutive years of deficits. But not all of Clinton’s actions were positive. He misled the public into believing that there would be large budget surpluses for at least a decade, thus creating the dangerous budget-surplus myth. Both Al Gore and George W. Bush participated in this big lie, and both promised tax cuts.

President George W. Bush pushed through Congress huge tax cuts under the guise that the government had large amounts of surplus money. Bush led the government back into deficit territory during his first year in office, and the deficits just got bigger and bigger throughout the rest of his presidency. When Bush turned over the reins of power to President Obama in January 2009, the national debt, which had been $1 trillion in 1981, and $5.7 trillion when Bush took office in January 2001, was more than $10.6 trillion.

For years, I warned my students, and anyone else who would listen, that the growing debt was reducing the government’s flexibility to deal with crises. I explained that if the government were, at some point in the future, suddenly forced to spend large amounts of unanticipated additional money, because of a war, or some other kind of crisis, the huge accumulated public debt would greatly handicap the government’s action.

In 2008 the unthinkable happened. At a time when the nation was already spending massive amounts of borrowed money on two wars, the nation’s banking system and the economy went into free fall. We came much closer to a 1930s-style depression than most Americans realize. The financial system had to be bailed out, and the economy had to receive a large stimulus in order to keep the nation from plunging into another great depression. This action has contributed enormously to the large deficits and the growth in the public debt in the short term.

We, as a nation, must acknowledge the reckless financial and economic policies of the past and resolve to make a major change in course as soon as the economy recovers enough to minimize the risk that stringent new fiscal polices might throw the economy back into a recession, or worse yet, a depression. But let us not forget that more than 90 percent of the $10.6 trillion national debt that Obama inherited was accumulated during the years between the beginning of Ronald Reagan’s presidency and the end of the George W. Bush presidency.

Dr. Allen W. Smith is a Professor of Economics, Emeritus, at Eastern Illinois University. He is the author of seven books and has been researching and writing about Social Security financing for the past ten years. His latest book is Raiding the Trust Fund: Using Social Security Money to Fund Tax Cuts for the Rich. Read other articles by Allen, or visit Allen's website.

2 comments on this article so far ...

Comments RSS feed

  1. David Smith said on January 5th, 2010 at 11:25am #

    While true that the national deficit has ballooned and that the worst of it occurred under Republican presidents, still the question must be asked – so what?

    Unless one is somehow committed to the success of the current system (and I mean in ways more telling than needing a job to get by) it is hard to find a reason why one should care. Even if the “worst” was to happen and the gov’t went “bankrupt,” how is that going to affect me or any other average person?

    Sure, they’re would be some “economic dislocation” – but maybe that’s what we really need to bring this consumption fest to a close, lead us back to supporting one another rather than propping up this false mythos about individual responsibility.

  2. Don Hawkins said on January 5th, 2010 at 2:02pm #

    Dr. Allen W. Smith I read Kim’s post and now yours what James Hansen said is simple and to the point just curious on your thoughts on what he said, James Hansen as some of the best minds we have say we need this and need it NOW with a few more minor changes to the system. A new way of thinking. Any thoughts?

    Jim: You have to recognize that as long as fossil fuels are the cheapest energy, they’re going to be used. To change that situation, you have to place a gradually rising price on carbon emissions.

    We have to have a very simple system—put a fee on fossil fuels at their origin at the mine or the port of entry. No exceptions.

    If the carbon price rises to $115 per ton of carbon dioxide, considering the amount of oil, gas, and coal used last year in the United States, that would generate $670 billion dollars. That’s between $7,500 and $9,000 dollars per family.

    That money needs to be given 100 percent to the public so that they have the resources to adjust their lifestyles—such as to buy more efficient vehicles or insulate their homes. As the carbon price rises, it’s going to become less and less sensible, for instance, to import food from halfway around the world. The economics would favor a nearby farm, as opposed to agriculture at a great distance.

    You cannot have these boondoggles in which we invest billions and billions of dollars in so-called clean coal and give money to polluters. James Hansen