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How Dangerous Is Our Big National Debt?

October 29, 2010

We hear a lot of emotional outcries about how dangerous it is to have the national debt grow. We are told by many that it will be a cruel and crushing burden on our children and grandchildren, that will ruin their lives as they are forced to  struggle and sacrifice to pay off the indebtedness that their profligate elders recklessly ran up.  An inherited burden that will haunt their lives. We are also told big debts cripple economic growth, depress standards of living, and make the whole system in danger of sudden and disastrous collapse.

Is that really true, though? I admit I am not an economist but I  am a student of history and I know some relevant facts that raise questions in my mind.

When World War II ended, we had a  larger national debt , in proportion to our Gross Domestic Product (GDP) than we do now. (Wars are always the most expensive activity any government can engage in).  Was this a crushing burden that  destroyed the American economy and crippled the lives of the post-war generation? No. On the contrary, the thirty years between 1946 and about 1976 were the most prosperous in recorded world history. Not just in US history, but a greater expansion of prosperity and rising standards of living than has ever happened anywhere in the world before or since. Was this because taxes were slashed? No, apparently not.  Corporate income taxes in the period 1946-60 remained higher than they’ve been  at any time  from 1960  to the present.  Was it because  post-war government spending was minimized? No, not at all.  Here is a partial list of expensive activities the US government spent  tons of money on in the post-WWII era:

The GI Bill, an entitlement program in which the  federal government agreed to pay the costs of  a college education for 16,000,000 veterans– and all subsequent veterans in the future.

The Marshall Plan to rebuild Europe  (much of it int he form of  tax-payer subsidized credits to purchase from American businesses)

The Korean War, 1950-53 (38,000 Americans killed)

The Cold War and the creation of 3,000 overseas military bases and as many as 3,000,000 servicemen in uniform at one time.

Post-War occupation and rebuilding of West Berlin and West Germany. The US sank millions into making West Berlin a showcase of capitalist prosperity, contrasting with the bleak  austerity of Soviet-occupied East Berlin. Maintenance of a standing army of over 500,000 in West Germany for about four decades.

In cooperation with state governments,  creation of a vast network of taxpayer-subsidized state universities, colleges, and junior colleges. California, for example,  expanded their system to seven campuses of the University of California, 19 tuition-free state colleges from San Diego State to Humboldt State, including San Francisco and Chico State,  too– and dozens of  tuition-free community or junior colleges from which one could transfer to four-year colleges.   Before  WWII a college education was a rich mans’ privilege: not more than 10% of adult white males attended college.  Among women and minorities, it was a lot less. But by 1970 over half of all high school grads were going on to college.

Creation of the massive Interstate Highway System from coast to coast, under Eisenhower

The Cold-War fueled nuclear arms race, the missile race, and the space race

LBJ’s Great Society programs

Expansion of Social Security, and the creation of Medicare and Medicaid

The Vietnam War (especially 1964-75) &  the cost of smaller  military actions (e.g., occupation of Lebanon;  actions in Laos, Quemoy & Matsu; ongoing  military presence in South Korea)

This was also an era of continued high taxes on business,  of strong unions, and of government financial regulation.

The so-called  “Labor Aristocracy”, skilled tradesmen like carpenters, machinists, and electricians  started earning more than many white-collar workers with college degrees.  By the late fifties, many blue-collar workers were buying pleasure boats, second cars, and taking vacations in Hawaii–things unthinkable  just 15 years before.

And yet the deficit declined.  The national debt was paid down.  From the vantage point of 2010, it makes you ask, How did they ever manage to do all that? What an amazing record of accomplishment.”  (I know there was a less rosy side to the era, too,  like racism,  McCarthyism, the haunting threat of nuclear annihilation,  Vietnam, the turmoil of the Sixties, Watergate,  the Iran-Contra scandal, etc., but I’m making a point about economic expansion despite massive spending and deficits)

The national debt didn’t take a substantial jump again until Reagan came into office in 1981. Bill Clinton reduced it, balanced the budget, and left his successor a surplus. But George W. Bush sent it soaring to new heights with two wars he made no provision to pay for, and four rounds of tax cuts for the wealthy. He passed on a ruined economy and a massive deficit to his successor to worry about.

I offer these reminders to stimulate  reflection and study. I don’t pretend to have the answers. Someone will point out that today’s situation isn’t the same, and they will be right. This isn’t 1946. It’s a different America and a different world today, 64 years later. We are in a different situation now and facing different challenges. Yet the past can give us clues to help us see the present more clearly, to  today in better perspective, to understand that the present has a history.

I certainly don’t mean to suggest deficits and debts are harmless, benign, never anything to worry about.  But the common-sense principles that guide individual and family finances don’t always apply to nations. I mean to point out that the US national debt doesn’t seem to have crippled the economy in the past or ruined the lives of generations that inherited that debt. 

 When was it ever a cruel and crushing burden on the next generation?

I think the burden of proof lies with those who claim it is, or will be in the immediate future. Where is the historical evidence?

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