July 20, 2008
William F. Shughart II
The Washington Times, Lowell Sun, Hattiesburg American
Both presidential candidates claim to favor change. Yet neither has told us what he will do to end Washington’s addiction to deficit spending.
For the last five years, Congress and the White House have been on a spending binge that would embarrass a sailor on shore leave. This has resulted in some of the biggest federal budget deficits in history. In February, the $175.6 billion deficit was a single-month record, 46 percent higher than the previous single month high (in February 2007), and nearly $14 billion more than the deficit for all of fiscal 2007, which ended last Sept. 30.
With the economy in the doldrums and the federal budget at an all-time high, the total deficit for fiscal 2008 (ending this Sept. 30) is expected to top $410 billion—with another $407 billion in red ink forecast for fiscal 2009, both within striking distance of 2004’s record annual deficit of $412.7 billion.
The mountains of red ink have just one cause: Washington’s failure to live within its means. We almost take fiscal irresponsibility for granted. This needs to be changed.
Such irresponsibility is a relatively recent phenomenon. Total federal debt in 1940—that is, all the government’s accumulated deficits from the time of the Founding until just before World War II—was just $50.7 billion.
In 1947, after the costly war and America’s huge investment in the rebuilding of Europe and Japan, the government’s total debt stood at $257 billion. It took about 18 years for that figure to double, gradually edging up to $542 billion in 1975.
In many of the postwar years, the government actually operated in the black. It had a surplus of $4 billion in 1947 (the equivalent of about $38.3 billion in current dollars) and modest surpluses in 1948, ’49, ’51, ’56, ’57, 1960 and 1969 as well.
The pace of deficit spending and debt accumulation then accelerated. Total federal debt doubled from 1975 to 1982, when it broke the $1 trillion barrier, ending the year at $1.14 trillion. Only five years were needed to double the total again, increasing to $2.35 trillion in 1987. It nearly doubled again over the next seven years, hitting $4.64 trillion in 1994. And if the estimates of government accountants are accurate, it will have doubled again by the end of the current fiscal year, ending the year at $9.65 trillion, heading upward to an estimated $10.5 trillion by the end of the next fiscal year.
And none of these figures included the estimated $44 trillion in unfunded liabilities of the Social Security and Medicare "trust funds," so-called off-budget obligations that could tip the country into bankruptcy.
What do all of these numbers mean? Economists since the time of Adam Smith have recognized that the burden of financing the public debt falls mainly on future generations: on our children and grandkids. It is they who will be called upon to "service" the debt by paying interest to bondholders.
This is no small matter. Net interest on the federal government’s debt amounted to $20.2 billion in February 2008 alone. On an annual basis, that means we’re spending more than $240 billion a year just on interest on the national debt.
At the end of fiscal 2007, the national debt amounted to $29,634 for every man, woman and child in the United States. The tab more than doubles—to $61,286—when the burden is divided only among working Americans: the slightly more than 146 million potential taxpayers employed at the time.
The harmful economic effects of the national debt cannot be dismissed by saying "we owe it to ourselves." Such rhetoric and the related claim that some categories of government spending (such as education, transportation, research into alternative fuels) are "investments" rather than expenditures, doesn’t hide the fact that large amounts of public debt retard economic growth by diverting money from private saving and capital formation.
Borrowing nevertheless is politically popular because postponing the bill lowers the immediate cost of government to today’s taxpayers—and frees candidates to spend more. Heaven help our children when the bills come due.
William F. Shughart II is a Senior Fellow at The Independent Institute, Frederick A. P. Barnard Distinguished Professor of Economics at the University of Mississippi, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.