The Atlantic: Opinion: James Fallows: An Update to That Deficit Chart: The Cause of The U.S. Debt & Deficits

An Update to that Deficit Chart – The Atlantic.

Talk of large deficits and debts in Washington is nothing new. Its gone back to the 80s in the Reagan Administration. Actually pre 1998 the last time the Federal Government balanced its budget. You have to go back more than a generation to 1969 in the Nixon Administration. The Federal Government didn’t balance its budget the during the entire 70s decade. But the deficit was never more than a few percentage points of GDP. Even in a decade where the economy was bad for the most part. Including a couple of recessions but the Nixon, Ford and Carter Administrations managed to keep federal spending down reasonably. Perhaps too much in the Carter Administration where the economy was awful. It’s the 1980s where our deficit and debt began to rise and rise and start to become a huge problem in the 1980s. Which I believed led us into recession in the early 90s because of the high Interest Rates.

In the 1980s the Reagan Administration inherited an awful economy, with high unemployment, high interest rates and high inflation. With low economic growth but the deficit was small compared with GDP at around 40B$. They decided along with Congress to pass a massive 1T$ tax cut across the board. Without paying for it and dramatically increase defense spending again without paying for it. As well as dramatically increase the Federal Government’s role in the war on drugs. Where we started arresting drug addicts who weren’t hurting anyone and throwing them in  prison. Which has contributed to our overcrowded corrections system. Things that we are still paying for and having to deal with as a society today. The Reagan Administration introduced supply side economics that Howard Dean labeled borrow and Spend Economics. The theory being if you dramatically cut taxes and increase government spending. Without paying for it, that the economic activity as a result from it, would pay for itself.

The Bush Administration of the 90s as well as the Clinton Administration. As well as Congress in that decade introduced a fiscal policy, called PAYGO. Meaning you pay as you go, you don’t increase spending without paying for it. And you don’t cut taxes without paying for them either. That you either increase taxes or cut spending somewhere else. As well as Deficit Reduction, President H.W. Bush inherited a budget deficit of around 200B$ when he became President in 1989. And it was around 300B$ when he left office in 1993. Which wasn’t his fault, he had a recession in 1990-91 that he inherited as a result of the high interest rates. But he and Congress reached a deficit reduction agreement in 1990 that increase taxes on the wealthy and cut the federal budget. President Clinton kept that policy and cut the federal budget and raised taxes on the wealthy again in 1993. The President and Congress balanced the budget in 1997.

It was back to the future with the second Bush Administration and Congress in 2001. As the brought the Reagan supply side economic policy. But cutting taxes by over a trillion dollars in 2001 and 2003 without paying for them. Wars in Afghanistan and Iraq in 2001 and 2003 again without paying for them. A 500B$ prescription drug benefit in 2003 without paying for them. All of this spending represents around 7T$ of our 14T$ National Debt. The Bush Administration stopped regulating Wall Street including Fannie Mai and Freddie Mac, which all collapsed in 2008. Which led into the Great Recession that we are still trying to recover from.

Borrow & Spend Economics

Borrow & Spend Economics 


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This is why we have these financial issues right now. The way to prevent them in the future, is cut back on things that we don’t need. Raise taxes on people who can afford them. And stop spending money on things that we don’t intend or can’t afford to pay for. And stop cutting taxes without paying for them. And we can avoid these financial issues in the future.


About Ederik Schneider

Blogger on a whole host of subjects.
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