When the gods dance...

Thursday, June 30, 2011

The National Debt — Where Did it Come From?

The National Debt — Where Did it Come From?

In 1981, the country had just elected Reagan to cure the "all-time-high, Trillion-Dollar debt." But compared with the size of the American economy, the debt was at its lowest point in fifty years (see graph just below). Reagan was duped by the "supply siders" and his greatest "disappointment" was adding $1.6 trillion to the $1T debt he said was catastrophic.
     Now, here's the new slide show that explains what happened step by step. In case you have questions, it's documented here.  And if you agree that this story really needs telling, we hope you'll tell your friends.

The full slide show is right below. In a hurry? Check out the short version: The Supply-Sider's Debt on Google, or e-Mail it to a friend.

The slide show contains more information than the video.


The green line shows what would have happened if Reagan and the Bushes had just kept the debt growing at the same rate as the economy. That would make their parts flat. Many conservatives claim Congress increased Reagan's budgets, but this is not the case as you can see documented here.
WWII caused the debt to shoot up, starting in 1942, and reach 30% higher relative to the country's wealth than it is today. The economic stimulus of that government spending pulled us out of the great depression and into high gear to win the war. (When to save / when to borrow.)

... The green line in the graph shows what would have happened if Reagan had proposed budgets that let the debt increase in step with inflation and the economy—if he had kept it at a constant fraction of GDP. That's not much to ask of a president who said he'd do far better than those before him, since every previous post-war president had actually reduced the debt as a fraction of GDP.

By the end of the Reagan-Bush 12-year "revolution," the extra debt they had piled on the country was costing the country an extra 2.6% of GDP in interest—$300 million a day. Without that interest working against him, Clinton would have paid down the debt a bit faster. That helps the green-line goes down in the Clinton years. That's what would have happened without the Reagan-Bush interest burden.

Now if W. Bush had held the line as all non-supply side presidents had done, the national debt would have been only 21% of GDP, and the country would have been ready to pull itself out of the Great Recession with ease. In fact when W. Bush's last budget year ended we would have had $9 Trillion less in debt.

So how did Reagan, the great debt-slasher, go so far wrong? Partly it was his belief in supply-side "economics." This "theory" claims that when the government cuts taxes, especially taxes on corporations and the rich, it makes them so happy to keep more of their money that they work much harder, get richer, and pay even more taxes than before the tax cut. So the lower the tax rate, the more money the government collects to pay down the debt! Believe that happy talk, and you can run up quite debt.

Of course the rich loved this "theory" and fed the press many stories about the wonders of the new supply-side "economics" (cooked up by Laffer, as a graduate student). Money talks, and a lot of people listened. It's time to rethink what radical conservatives have done and are doing to our country. The Reagan-Bushes National Debt now totals $9.2 trillion. That's the lions share of our present debt.

US National Debt FAQs
September 9, 2010.
Q: But, isn't the debt a huge problem?
zFact: We paid down a bigger one before without much of a problem, but it's not good. The question is when to pay it down, the answer is ...
via zfacts.com

COMMENT:  The national debt:  shiver, shiver.  If Congress does nothing (they are good at that) the Bush-era tax cuts will expire.  That will mean 3.8 trillion dollars of revenue over the next ten years.  Then there's the military...

Worse comes to worse, we should kill everyone over 55 except, of course, those making over $200K a year.  Perhaps a virus with a secret antidote?   

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