While it’s tempting to see the battles over budget deficits and fiscal cliff “crises” as a relatively new phenomenon, we have actually progressed toward this state for decades. A new report from the Federal Reserve of St. Louis made that clear last week, demonstrating that the drivers of our huge national debt and escalating deficits began not with Barack Obama, not with George W. Bush, and not even with Ronald Reagan’s defense spending – but with the escalation of entitlement and other individual payment programs in the later 1960s. The more things change, the more they stay the same.
“[T]he United States was on a collision course with a major debt problem for nearly four decades before the financial crisis,” the authors state in their preamble. “In particular, the debt problem began around 1970 when the government decided to significantly increase spending without a corresponding increase in revenue.” The nature of that spending, as a percentage of overall American GDP, is shown clearly in this chart included in the analysis:
Defense spending had already begun a significant downward trend by the 1970 point noted in the paper, even though the US was in the middle of a war in Vietnam at the time. Interest payments and other discretionary expenditures have remained relatively stable over the sixty-year period of this graph. The growth in spending has come from entitlement programs – Social Security, Medicare, and Medicaid – as well as other direct payments to individuals through federal programs, the latter especially over the last few years of the graph. At the same time, as the paper notes, federal revenues as a percentage of GDP have been relatively stable on a trendline that stays constant at around 19 percent, which dropped significantly in the last two years (2009-10) due to the Great Recession and weak recovery.
That’s not the only thing that’s stayed the same even as the times have changed. We still hear about the danger of deficits and national debt – only not from the same people. For instance, before he began ringing up four straight trillion-dollar deficits (witha fifth on the way) as President, Senator Barack Obama called George Bush’s deficits “unpatriotic.” Adding $4 trillion in eight years to the national debt by his lonesome, “in the name of our children,” was irresponsible.
After watching now-President Obama exceed that total in half the time, Democrats now discount the seriousness of skyrocketing deficits and debt. Paul Krugman argued last week that we shouldn’t worry about future deficits and long-term debt at all. “Why, exactly,” he asked, “should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?”
Perhaps it’s because with the past as a guide, we know that the political class will keep kicking cans down the road as long as possible. I have had the fortune to make many good friends in politics, one of whom is Pamela Stennis, the niece of longtime Blue Dog Democratic Senator John Stennis of Mississippi. Stennis served in the US Senate for over 41 years, retiring in 1989 after serving as President Pro Tempore for his final two years. Stennis oversaw the modernization of the US Navy in the 1970s as the chair of the Armed Services Committee; the Navy named a supercarrier for Stennis after his death.
Not long ago, Pamela ran across a column her uncle penned for a local newspaper, the Kemper County Messenger, in October 1984. The column sounds remarkably familiar in places, not because of my recollections of the mid-1980s budget battles, but because it echoes the debates today – except, of course, for the numbers. Unfortunately, those sound all too quaint.
“With the national debt approaching $1.5 trillion and with no apparent relief in sight,” Stennis wrote at the time, “we must make a concentrated effort to find the best way out of this devastating deficit dilemma.” How bad was the “devastating deficit dilemma” in 1984? “We simply cannot go on with annual deficits in the $200 billion range without subjecting our nation’s future to continued inflation and a financial burden which is simply too heavy to bear.”
Let’s put that in context. A $200 billion deficit in 1984 was certainly significant, but what would that mean in 2012 dollars? Calculating for an average annual inflation rate of 2.9 percent, that figure would be a deficit of $456 billion today. That’s not even half of the deficits run every year under Barack Obama. Similarly, the level of national debt of $1.5 trillion in 1984 would translate to $3.34 trillion in 2012 – about one-fifth of today’s national debt level of over $16 trillion.
What did Senator Stennis suggest to resolve the deficit crisis in 1984? That will sound more than vaguely familiar, too. “I have called for the formation of a bipartisan Commission on the Deficit to develop a plan for achieving a balanced federal budget by 1990,” Stennis announced in his October 1984 column, “composed of Members of Congress and outside economic experts.” The panel, Stennis promised, would study “the deficit problem to determine causes and solutions,” and would also provide “a budget plan for fiscal years 1985 through 1990,” delivering balance in the final year.
At least we can say that we adopted one of Stennis’ proposals. This is a good description of the Simpson-Bowles committee appointed by Barack Obama – and then ignored by him for the past two years. Obama will soon deliver his third budget since he launched the Simpson-Bowles committee in 2010, with absolutely no promise to follow its recommendations. And even in that regard, Obama will outdo his Democratic colleagues in the Senate, who refused to pass an annual budget plan three years in a row. Only yesterday did the new chair of the Senate Budget Committee, Patty Murray of Washington, commit to actually producing a budget plan as required by law.
We have seen what happens when Washington kicks the can down the road, which our political class has been doing for three decades or more. Why? They don’t want to have to take responsibility for taking the necessary and ever-more-painful steps to rein in spending on entitlements and individual payments, which are the prime drivers of out-of-control federal spending. This is why we have to worry about tomorrow’s budget today. Otherwise, in twenty years we’ll pull these same predictions and ask – as we do today – why no one paid attention while the problems could still be solved without massive economic damage.
Read more at http://www.thefiscaltimes.com/Columns/2013/01/23/Our-National-Debt-An-Odyssey-that-Speaks-Volumes.aspx#7ihBtixhqPCesojI.99