New approaches needed to tackle national debt

Posted Jan. 29, 2010, at 6:28 p.m.

According to Friday’s Bangor Daily News, all Senate Republicans, including Maine’s so-called “moderates,” Olympia Snowe and Susan Collins, lined up to block any further increase in the limit on the national debt. They no doubt will be applauded by conservatives, especially in their own party. And it is true that the rising national debt is a source of concern for us all. It is also true that in the recent past both Snowe and Collins have favored a debt limit increase when their party controlled the White House.

If the federal government’s Office of Management and Budget predictions prove to be true, at the end of this year the national debt will be equal to 98 percent of the national income, or Gross Domestic Product. This is pretty scary, and Republicans can be counted on to clamor for a halt to most federal spending — except, of course, the military. On the other hand, a Nobel Prize-winning economist, Paul Krugman, writing in Thursday’s New York Times, argues that the Obama administration has not spent enough. What is an ordinary citizen supposed to think? How serious is the crisis? Is it a crisis at all?

As a famous governor of New York, Al Smith, used to say, “Let’s look at the record.”

In 1945, at the end of World War II, the national debt stood at a whopping 118 percent of the national income, considerably more than the projections for 2010. That was the cost of a war that nearly all would agree was a war of necessity, not a war of choice.

In the following years, a curious thing happened. The percentage of the debt in relation to the GDP — let’s call it the debt-to-income ratio — began to drop. At the end of the Truman administration in 1953, it had dropped to 71 percent. The Eisenhower administration lowered it to 55 percent, Kennedy-Johnson to 39 percent and Nixon-Ford to 36 percent. When the much reviled Jimmy Carter left office, it stood at a postwar low of 33 percent.

Does this mean that federal spending and debt were reduced from 1945 to 1981? Not at all. On the contrary, both spending and debt dramatically increased. But the GDP increased even faster, thus lowering the debt-to-income ratio

In 1981, things changed. Ronald Reagan and his followers came to Washington promising to reduce the “oppressive” taxes American, especially rich Americans, were then suffering. They also increased military spending. The result was inevitable. When the Reagan-Bush administration left office in 1993, the national debt-to-income ratio had risen to 66 percent. Bill Clinton, by running surpluses during most of his administration, brought it down to 57 percent, but the second Bush administration, with more tax cuts and more military spending, raised it back up to 70 percent. That was what President Barack Obama was left with a year ago, along with a reeling economy and two wars.

The record shows that up to now every Democratic administration since 1945 reduced the debt-to-income ratio, and every Republican administration since 1980, including the last one, has raised it. It is a bit hypocritical for any senator, Republican or Democrat, to block an increase in the debt limit, when they themselves have collaborated in cutting taxes and escalating military spending in the past.

Clearly we are headed in the wrong direction. The solution is equally clear: restoring a more equitable tax structure; reducing, and eventually eliminating, the hundreds of billions of dollars annually wasted on unwinnable wars and maintaining domestic spending in ways that create jobs and income — therefore growing the GDP.

Lynn Hudson Parsons lives in Castine. He is professor emeritus of American history at the State University of New York, College at Brockport.

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