THE JOY OF SPENDING - THE NATIONAL
DEBT SINCE 1900
During my lifetime, the
National Debt has been a lively topic of discussion and a posturing point for
several generations of politicians. Terms and figures have been tossed around
until the senses of the public have become dulled, causing boredom, lack of
attention, and misunderstanding. I cannot gauge how severe this is, but a
refresher on the Debt seems necessary.
Being a mathematician, I’m
probably energized by numbers a little more than the average person. But I’ll
try to keep things on a readable plane.
First, a few basic
definitions:
Federal Budget
|
Annual plan of
expenditures and receipts for the Federal government. ($2.3 trillion
for FY 2004.) |
|
Federal Deficit |
Amount by which
expenditures exceed receipts for a Federal Fiscal year. (Estimated at
$500 billion for FY 2004.) |
|
Federal Surplus |
Amount by which receipts
exceed expenditures for a Fiscal year. (Surplus only 17 of last 100 years;
last – 1960.) |
|
National Debt |
Sum of Federal Deficits
and Surpluses for all fiscal years since the founding of USA. ($6.22
trillion, as of 2002.) |
|
Balanced Budget |
A budget whose planned expenditures equal planned
receipts. |
|
Billion |
1,000 millions – i.e., 1,000,000,000 or 109 |
|
Trillion |
1,000 billions – i.e., 1,000,000,000,000 or 1012 |
I listed “deficit” and “debt”
because they are sometimes confused. Deficit is for one year. President
Bush has submitted a budget for fiscal year 2004 which is in deficit by
hundreds of billions of dollars. In FY 2000 the deficit was a mere $17 billion.
Then, both politicians and pundits anticipated future budgets that would
actually be in surplus – something that hasn’t happened since 1960.
“Billion” and “trillion” are
meaningless quantities to most of us. We know the words, but the numbers are too
big. Math teachers try to help by noting that if you tried to spend a billion
dollars at the rate of $1,000 a day, you would need 2,739 years to spend it. Of
course, even this example misrepresents how gigantic the sum is. Would a billion
dollars be stacked up in the parlor? No – it would be in the bank where, even at
piddling interest of only 1% a year, your billion would earn $27,397 a day,
thus dwarfing the mere grand you planned to spend. Somewhere during the third
year of spending, the interest would overwhelm you. The wife (and your
brother-in-law, Joe) would run out of things to buy. (I know this seems
unbelievable.)
A billion dollars could not be
spent by an ordinary person. It would have to be squandered and lost – pasted up
as wallpaper, or used to light cigarettes. (Using $100 bills to light up, you’d
have to smoke 14 packs a day just to burn $28,000 – you wouldn’t live very
long.)
In currency, $1 billion is
100,000 packets of $100 bills, wrapped a hundred notes to a packet (i.e.,
$10,000). A small suitcase might hold 100 packets ($1 million), so 1,000
suitcases would be needed for the entire billion. If you tried to count the
money – assuming one packet a minute – 70 days of non-stop counting would be
needed. Counting only eight hours a day, you would need seven months.
Even less graspable is a
trillion. In the $1,000-a-day example, the scale increases by 1,000: i.e.,
$1,000 a day for 2,739,726 years; or $1,000,000 a day for 2,739 years. In either
case, at 1% interest per year, the income becomes $27,397,260 a day – boggling
the mind of even your teenaged daughter. (You’d need a million suitcases full of
$100 bills for a trillion dollars.)
All seriousness aside, this
illuminates the fundamental problem of the National Debt – namely, its size. The
current debt of $6.22 trillion is so gigantic as to be essentially meaningless
to John Q. Public. Thus, he tends to ignore it. This suits politicians very
well, since they like to keep a low profile on the Debt.
Even the notation works
against understanding. $100 billion added to the debt merely changes its
numerals from $6.22 trillion to $6.32 trillion – barely perceptible, even though
the increment ($0.1 trillion) exceeds the Gross National Product of all
but a score of countries on earth.
The National Debt represents a
numerical history of the United States, showing when wars and other crises
occurred, and underscoring the ascendancy of one political party or another. In
1900, the Debt was $2.1 billion – a small amount, even if adjusted to constant
2003-dollars (i.e., perhaps $40 billion). It meant that in the first 110 years
of our history, the government accumulated a debt of only $21 per citizen –
about $400 in constant 2003-dollars. (This included the Civil War.) Today, the
Debt is $22,244 per citizen.
For convenience, I provide a
chart of the debt’s growth, by presidential administration, since 1901:
|
President |
Starting Debt |
Ending Debt |
$$$ Growth |
% Growth |
Yrs |
|
Roosevelt |
2,143,326,934 |
2,639,546,241 |
496,219,307 |
23.15% |
8 |
|
Taft |
2,639,546,241 |
2,916,204,914 |
276,658,673 |
10.48% |
4 |
|
Wilson |
2,916,204,914 |
23,977,450,553 |
21,061,245,639 |
722.21% |
8 |
|
Harding |
23,977,450,553 |
22,349,707,365 |
-1,627,743,187 |
-6.79% |
2 |
|
Coolidge |
22,349,707,365 |
16,931,088,484 |
-5,418,618,881 |
-24.24% |
6 |
|
Hoover |
16,931,088,484 |
22,538,672,560 |
5,607,584,076 |
33.12% |
4 |
|
FDR |
22,538,672,560 |
258,682,187,410 |
236,143,514,850 |
1047.73% |
12 |
|
Truman |
258,682,187,410 |
266,071,061,639 |
7,388,874,229 |
2.86% |
8 |
|
Eisenhower |
266,071,061,639 |
290,216,815,242 |
24,145,753,603 |
9.07% |
8 |
|
Kennedy |
290,216,815,242 |
309,346,845,059 |
19,130,029,817 |
6.59% |
3 |
|
LBJ |
309,346,845,059 |
358,028,625,003 |
48,681,779,944 |
15.74% |
5 |
|
Nixon |
358,028,625,003 |
492,665,000,000 |
134,636,374,997 |
37.60% |
5.5 |
|
Ford |
492,665,000,000 |
653,544,000,000 |
160,879,000,000 |
32.65% |
2.5 |
|
Carter |
653,544,000,000 |
930,210,000,000 |
276,666,000,000 |
42.33% |
4 |
|
Reagan |
930,210,000,000 |
2,602,337,712,041 |
1,672,127,712,041 |
179.76% |
8 |
|
GHW
Bush |
2,602,337,712,041 |
4,064,620,655,522 |
1,462,282,943,481 |
56.19% |
4 |
|
Clinton |
4,064,620,655,522 |
5,674,178,209,887 |
1,609,557,554,365 |
39.60% |
8 |
|
GW
Bush |
5,674,178,209,887 |
6,228,235,965,597 |
554,057,755,710 |
9.76% |
2 |
Totals
|
|
|
6,226,092,638,663 |
290,487.30% |
102 |
By 1912 the Debt was $2.9
billion – much of the 36% growth occurring around the Panic of 1907 – what we
now call a stock “crash”. My grandma, who worked in New York City at that time,
spoke of the great crowds at the exchanges and reports of ruined investors
leaping from office windows.
During Woodrow Wilson’s first
term (1913-1917), the Debt grew 25% to $3.6 billion. But during World War I
(1917-1919), it grew by nearly 400% to $27.4 billion. In fact, 1918 marked the
highest-ever single-year percentage-growth of the debt (155%). Movie stars,
opera singers and ballplayers helped sell War Bonds to finance our transition to
a modern armed force. Over Mr. Wilson’s terms the Debt grew by 722%, making him
the “champeen” debtor of all presidents (+30% per year).
After WW I, Republican
administrations ran budget surpluses for eleven straight years, reducing the
debt by 40% to $16 billion. Warren G. Harding and Calvin Coolidge are the
only 20th century presidents who actually reduced the debt.
The Great Depression
(1930-’39) marked the start of prolonged major growth in the Debt. Over those
nine years it grew by 150%, and during World War II by another 430%. By 1945,
the National Debt was $260 billion – nearly 120 times its 1900 level. FDR grew
the debt by a record 1048%. Since he held office for 12 years, his annual growth
rate (+22.5%) is second to Woodrow Wilson’s.
Post-war budgets had surpluses
in six different years – the last being 1960. By 1960 the Debt was $290 billion
– up only 11%, post-war. 1960 is notable for me. I recall a pie chart showing a
$100 billion Federal Budget for that year – 50% for defense spending, and 50%
for other spending. So the National Debt was then nearly 3 times the Federal
Budget.
The years 1961-’77 spanned the
Kennedy, LBJ, Nixon and Ford administrations. The Great Society, the Vietnam
War, and the aftermath of the Nixon resignation grew the Debt by 148%, from $290
billion to $720 billion. During the Carter Administration (1977-’81) the Debt
grew another 42%. It stood on the brink of $1 trillion when Mr. Reagan took
office in 1981. Nevertheless, the Debt was then only twice the size of the
Federal Budget ($525 billion for FY 79). The budget was growing faster than the
Debt.
Mr. Reagan got the horselaugh,
of course, for having the Debt pass $1 trillion on his watch. By the time he and
George H. W. Bush were done, in 1993, the Debt had quadrupled to over $4
trillion. During Mr. Reagan’s administration the Debt increased by 180%, to $2.6
trillion (13.7% per year). In his four years Mr. Bush took it up another 50%.
During the Clinton years the
Debt increased by 40% – piddling, compared to Wilson, FDR, LBJ, and Reagan.
Indeed, in Mr. Clinton’s last year (2000), the Federal Budget came as close to
being balanced as in 40 years. That year’s deficit of $17 billion increased the
Debt a mere 0.32%. A Republican Congress for six of his eight years helped Mr.
Clinton keep his annual Debt-rate to +4.3%.
Does the debt matter? Should
we care about it? FDR liked to say (grandly), “We owe it to ourselves.” That may
have been true once, but it is less true today. A growing share of the Debt is
financed by foreign interests. Continued flotation depends, to some extent, on
whether those lenders will stay invested. That is also true of domestic
investors. Confidence in the US government is what keeps any investor buying
T-bills and other investment paper.
As to whether we should care
about the Debt’s size, it’s important to understand that interest on the Debt is
now a major item in the Federal Budget. It is a real cost that must be paid out
in real dollars. At today’s low interest rates (2%), the interest cost is only
$130 billion or so each year. But the dragon is only sleeping.
Should the Fed decide to push
rates up to 10% or higher, as during the Carter and Reagan years, that annual
interest would hit $600 billion or more and would blow the lid off the budget.
We would be like a person borrowing more money just to pay the interest on his
credit cards – but on a gigantic scale. Actually, we’ve been doing that for most
of the last 40 years. The Debt has grown twenty-fold since 1960.
In effect, the Debt’s size is
acting like a brake on interest rates. The deficit is nearly $500 billion this
year. A serious attempt to raise interest rates, could push it toward $1
trillion. One suspects that Mr. Bush has no intention of letting that happen,
and has so instructed Fed Chairman Greenspan.
But things don’t always go
according to plan. At some point, retirees – now making zippo on their savings –
are bound to demand higher interest. Rates cannot stay where they are forever.
When they finally rise, the Budget will go crazy.
There is no obvious
concentrated political will to reduce the National Debt. In the 1930s, Democrats
discovered that it was more fun, and politically more rewarding, to spend money
and run up the debt, than to economize and pay it down. For the next 30-odd
years, they did just that, while Republicans tried to win elections on fiscal
responsibility and calls for higher taxes to retire the Debt.
Republicans thus became “Tax
Collectors for the Welfare State” – officially assigned to fiscal scolding. It
was not a popular role, so the voters didn’t hand them the reins very often.
Except for the 80th Congress (1947-’48) and the 83rd
(1953-’55), Democrats remained firmly in control from 1933 until 1995. By then,
Mr. Reagan and Mr. Bush (41) had kicked over the traces and become big spenders,
too.
Of course, no president can
spend a dime without the complicity of Congress. For decades, Republican
presidents pleaded that they were hostages of Democratic Congresses which held
the purse strings. Finally, the voters called this bluff. In 2002 they gave G.
W. Bush a Republican Congress to see where he would take it. To date, Mr. Bush
(43) is doing his best to show how well he learned the lessons taught by New
Deal Democrats. Everybody loves a big spender, and “W” seems determined to be
popular.
What comes after a trillion? I
have to look it up.
|
