Wars and tax cuts not responsible for U.S. debt crisis
Sun Media via Toronto Sun ^ | 2011-08-01 | John Robson
How did the United States get into this debt mess?
President Obama blames both parties, and he’s right. But the real question isn’t who did it, it’s how. The answer is social programs.
America’s previous debt problems all came from major national emergencies, beginning with the Revolutionary War. The Civil War saw debt skyrocket from $65 million in 1860 to $2.5 billion in 1870; World War I from $2.6 billion in 1910 to $26 billion in 1920; World War II from $43 billion in 1940 to $257 billion in 1950. But when the clearly defined crisis ended, so did the extra spending, and the debt stabilized.
Even the Cold War produced little borrowing; 1960’s $290-billion debt was just 13% higher than in 1950. But then it exploded: $389 billion in 1970; $930 billion in 1980; $3.2 trillion in 1990; $5.7 trillion in 2000; and 2010’s $13.6 trillion.
Still, to say the debt is at record levels is not, by itself, to say much. Between economic growth and inflation, a debt that was horrifying in, for instance, 1840 would be laughable today. (Since you ask, it was $3.5 million.)
The best way to gauge the seriousness of government debt, though far from perfect, is by its share of GDP. That measure shows U.S. federal debt staying under 40% even in the Civil War and World War I, rising a bit above it in the Great Depression, spiking in World War II at over 110%, then falling steadily to under 30% by the early 1980s. Then it rebounded and, after a dip in the late 1990s, shot upward.
A “discourse” on the left blames it all on the right. The Toronto Star’s Heather Mallick just blamed this year’s $1.4 trillion deficit on “George W. Bush’s tax cuts and by Barack Obama’s continuing to wage two unwinnable, unaffordable wars and starting a third in Libya”. But it just ain’t so.
Tax cuts cannot be the culprit because the United States does not have a revenue problem. For six decades federal taxes took an average of just under 18% of GDP and, after a sharp recessionary dip, are heading back that way.
The U.S. has a spending problem. From an average of just over 18% of GDP from 1950 to 1974, federal spending rose to an average of 20.8% from 1975 to 2007 then shot up to over 25%. And not on wars: at $666.7 billion in 2010 (about 4.5% of GDP) the military budget is less than half the deficit. Moreover, defence’s share of GDP fell from nearly 15% in the early 1950s to under 10% by 1970 to under 5% by 2000 yet the budget was not on fire in the 1950s or even 1970s.
As Sherlock Holmes says, when you have eliminated the impossible, whatever remains, however improbable, must be the truth. The guilty party is non-defence spending and, more particularly, social programs.
Washington took significant steps toward a welfare state in the 1930s under FDR. But only in the 1960s did it really start “throwing money” at social problems while trying hard to remove the stigma of taking government cash.
It worked. Spending on poverty more than doubled in the 1960s alone, and welfare payments tripled. Medicare, the federal health program for the elderly created in 1965, was meant to cost $3.2 billion a year but hit $13 billion by 1975, $79 billion by 1988 and $231 billion by 2002. Then George Bush inspired Congress to add pharmaceutical benefits, and the total cost exceeded $451 billion in 2010.
Medicaid, a parallel 1965 program for the poor (with significant state and local funding, unlike Medicare), exploded in a similar fashion, costing Washington $272 billion by 2010. Meanwhile, Social Security hit $706 billion, while other Income Security programs together took $622 billion.
The 2008 recession and Obamacare worsened the picture. But already in 2007 the Congressional Budget Office warned that Social Security, Medicare and Medicaid consumed 8.4% of GDP but by 2030 would pass 16% and under no conceivable circumstances could revenue keep pace.
As Sarah Palin just said, “It’s the spending, stupid.” Specifically non-defence spending. That’s where the problem came from, and the only place it can be solved.
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