Polls show that Americans are extremely concerned about the national debt — and as usual, when public sentiment becomes inflamed, politicians leap into action or at least try to give the appearance of doing so. Hence, we are now seeing the introduction of deficit reduction plans from all corners of the political spectrum.
However, there are some scholars who contend that there is little reason to worry about the national debt because it reached far higher levels in the past, specifically in the wake of World War II. Take, for instance, Mount Holyoke College professor Douglas J. Amy, who insists that people who believe that massive deficit spending and a large national debt are necessarily bad for an economy are wrong.
To see why, we need to simply look back at times when we have run up large deficits and increased the national debt. The best example is World War II when the national debt soared to 120% of GDP — nearly twice the size of today’s debt. This spending not only got us out of the Great Depression but set the stage for a prolonged period of sustained economic growth in the 50s and 60s.
In a 2009 commentary, the estimable Paul Krugman, a Nobel Prize-winning economist and Princeton University professor, offered a more cautious prognosis of the situation, noting that “the debt outlook is bad” but hedging that “even if we do run these deficits, federal debt as a share of GDP will be substantially less than it was at the end of World War II.” Expounding further, he wrote that “we’re not looking at something inconceivable, impossible to deal with; we’re looking at debt levels that a number of advanced countries, the U.S. included, have had in the past, and dealt with.”
In reality, the debt situation is far more ominous than these scholars suggest, for they have neglected a crucial distinction between the United States of 1946 and that of today: the existence of enormous unfunded obligations that are now bearing down on us from entitlement programs such as Medicare. Consider the following contrasts in spending, taxes, and debt from the two comparative eras.
After the end of World War II, federal spending dropped precipitously, and for the 40 years that followed, expenditures (as a portion of GDP) averaged 42% lower than the last year of the war. Consequently, the publicly held debt plummeted from 109% of GDP in 1946 to 36% in 1985. This enormous improvement occurred in a period when federal receipts averaged 18% of GDP.
In contrast, the Congressional Budget Office projects that under “current policy” (which includes letting the “tax cuts for the rich” expire), over the next 40 years, federal revenues will average 19% of GDP while spending (as a portion of GDP) will average 35% higher than in 2010 and over 78% higher than in the four decades that followed World War II.
Meanwhile, publicly held debt is projected to rise from 66% of GDP in 2011 to 344% of GDP in 2050. Moreover, the debt will grow progressively worse after that, as shown in this graph:
What causes the increased spending that drives this catastrophic debt? As explained by the Congressional Budget Office, other than interest on the national debt, our future long-term spending growth “is attributable entirely to increases in spending on several large mandatory programs: Social Security, Medicare, Medicaid, and (to a lesser extent) insurance subsidies that will be provided through the exchanges established by the recently enacted health care legislation.”
Forebodingly, this surge in social spending is on top of similar steep rises over the past 50 years that have already crowded out much of the federal government’s other functions:
Three inescapable conclusions fall out of the historical and projected data on taxes, spending, and the national debt: (1) the magnitude of the threat we now face is unprecedented, (2) our debt problems are primarily caused by increased spending, and (3) social programs are the main drivers of this spending.
There is a contingent of politicians, journalists, and commentators who have attempted to turn reality on its head by primarily blaming lowered taxes and military spending for our national debt. Like the professors who downplay the severity of the debt, their contentions are demonstrably at odds with the facts.
Worse yet, the longer such voices mask the implications and causes of our debt, the longer it will take to solve the problem, and the more pain the American people will suffer. In the words of the Congressional Budget Office, “postponing action would substantially increase the size of the policy adjustments needed to put the budget on a sustainable course.”
All told, the danger posed by our national debt is a hard reality that better be forcefully tackled now. Sticking our heads in the sand and increasing the debt limit without major course corrections will only worsen the damage that excessive indebtedness will inflict upon our country.
James D. Agresti is the president of Just Facts, a nonprofit institute dedicated to researching and publishing verifiable facts on public policy issues. Detailed documentation for the facts above is available here.