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History Tells Us Why The Deficit Reduction Effort Is Doomed To Fail
Think this is the week we're finally going to take care of the deficit?
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Please. Politicians and economists have been freaking out about the deficit and the national debt for hundreds of years.
Even George Washington warned the country in his closing address: "Avoid likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts."
Deficit hawks including Thomas Edison, Calvin Coolidge, Strom Thurmond and Bob Dole have all failed to stop the national debt from growing. George Washington thought $83 million was bad. Today we're close to $14 trillion.
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Doubleline Capital's Jeff Gundlach makes a compelling argument that some kind of default is inevitable.
Date: September 17, 1796
Debt: $83,762,172
In his farewell advice -- which is full of advice we as a country ignored -- Washington warned America to end the debt: "
"As a very important source of strength and security, cherish public credit. One method of preserving it is, to use it as sparingly as possible; avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it; avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts, which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burthen, which we ourselves ought to bear."
Date: 1816
Debt: $127,334,933
America's third president hated the idea of a national debt. In a letter to John Taylor, he wrote: "I sincerely believe... that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale."
And other great quotes: "[With the decline of society] begins, indeed, the bellum omnium in omnia [war of all against all], which some philosophers observing to be so general in this world, have mistaken it for the natural, instead of the abusive state of man. And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression." --Thomas Jefferson to Samuel Kercheval
Date: Circa 1921
Debt: $23,977,450,552
Light bulb inventor Thomas Edison hated the debt, as in this classic quote: "It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges, at the hands of men, who control the fictitious value of gold. Interest is the invention of Satan."
Date: October 10, 1927
Debt: $18,511,906,931
Calvin Coolide threatened to shift all pork-barrel spending to pay for the national debt. The Evening Independent reports: "The president is said to believe that the greatest boon to the people would be the wiping out of the national debt and that if this was accomplished the interest now paid on the debt would satisfy every reasonable request for funds for internal improvements that is made in any one year."
Date: February 11, 1940
Debt: $42,967,531,037
Republican presidential candidate Thomas Dewey was furious when the president claimed government debt had not increased from 1932 to 1940, according to The Milwaukee Sentinel.
Dewey said Roosevelt "made an error of twenty-six and a half billion dollars... the greatest financial error in history. Just to measure the size of the blunder, that error was about equal in dollars to all the money spent by the United States government in its whole history from the day George Washington took office until the outbreak of the great war in 1917."
(In his defense, FDR said he included private debt in his estimate.)
Date: January 22, 1947
Debt: $269,422,099,173
Sen. Harry Byrd (D-VA) said Congress should reduce the $300-billion debt limit in light of the shorter-than-expected war.
"Unless the budget is balanced during the period of this existing prosperity it may never be balanced until America goes over the precipice of financial catastrophe," Byrd told Free-Lance Star.
Date: January 3, 1948
Debt: $252,292,246,512
Yale economist Fred Rogers Fairchild led the 1940s deficit hawks, according to The Spokesman-Review: "He derides 'the new philosophy of public debt,' calls it romancing and wishful thinking and says 'the theoretical basis underlying this new debt policy is false.'"
"Viewing government borrowing so lightly, he believes, encourages the government to spend freely and to promote more and more governmental activities. In his view the result will be more and more restricted, and that ultimately the totalitarian state may emerge."
Date: February 27, 1959
Debt: $284,705,907,078
Texas Democrat Jim Wright said the government should set aside one percent of the debt every year for 100 years to get it done, according to Free-Lance Star.
He warned of the alternative: "This means that if things go along exactly as they have been going, without any increases in the national debt and without still another jump in the interest rates, in 29 years we shall have paid the total amount of the debt and still owe every penny of it."
Date: August 5, 1959
Debt: $284,705,907,078
A young Strom Thurmond assailed the government's loose fiscal policy in an editorial: "The savings and securities of the American public are on loan to the Federal government... Failure to pay by the government would result in disaster to almost every American family.
"It is sound business only so long as it is used to prevent fluctuations in the tax level to meet expenses which fluctuate; it is now at a dangerous extreme."
Date: May 26, 1964
Debt: $311,712,899,257
As the White House petitioned to raise the debt limit, Haley renewed his call to retire the debt, reports Sarasota Herald Tribune: "We will never get rid of this horrifying burden on the taxpayers, and the national economy, unless we make a start.
Haley's plan was to set aside 5% of revenue in peacetime years for debt financing.
Date: November 14, 1983
Debt: $1,377,210,000,000
Republican Bob Dole challenged Reagan to focus on reducing the national debt. He told the AP: "There's no doubt in my mind that they're a great danger to the economy of this country and therefore nearly every American. Just look at the interest we're paying on the debt. If you assume the debt may double in the next five or six years the interest on the debt at that time will be $250 billion a year.
"It doesn't help a single American, doesn't build any homes, doesn't build any highways, doesn't help any farmers, doesn't help any working people, it's just interest on the debt. The more we go into debt, the bigger the interest bill's going to be."
Date: February 6, 1984
Debt: $1,572,266,000,000
The Democratic presidential candidate assailed Reagan, according to Sydney Morning, saying "He intentionally created a deficit so large that we Democrats will never have enough money to build the sort of Government programs we want... He came [to Washington] to preside as referee in bankruptcy over the dismantling of the American Government," on the theory that "if we create a big enough deficit then we can halt government and break that Democratic bureaucracy."
Date: February 5, 1984
Debt: $1,572,266,000,000
Economist Herbert Stein, who advised Nixon and Ford, said Reagan's budget outlined a "frightening" future, according to The Pittsburgh Press: "One of the most staggering things about the budget is that the debt will have doubled in five years. As the interest costs rise, they raise the deficits, which can reach intolerable levels."
Writes the Press: Mr. Stein says the deficits are like smoking cigarettes -- they probably won't kill you this year, but they are clearly injurious to the nation's health.
Date: October 24, 1988
Debt: $2,602,337,712,041
20 years before establishing a foundation dedicated to fighting the debt, billionaire Pete Peterson published On Borrowed Time: How the Growth in Entitlement Spending Threatens America's Future. Via book review in Fortune:
Are we committed to spend more in the future than we can afford? Will the young people of the future be taxed unmercifully to pay for the comforts of the new elderly? Is much of our entitlement spending unnecessary and, perhaps, immoral? Investment banker Peter G. Peterson, former commerce secretary and chief of Lehman Brothers Kuhn Loeb, now head of the Blackstone Group, and Neil Howe, a senior fellow at the Retirement Policy Institute, vehemently argue ''yes'' to all the above. We are far down the path to social and economic disaster, they say. Unless we as a people begin to practice ''self-denial and collective discipline'' we will be forced to endure ''cuts in progressive public spending, a decline in our international influence, and a growing cynicism about our collective historical destiny.''
The formation of a new political consensus that is, at once, conservative in its approach to economic issues and compassionate in its approach to social problems, tough-minded on foreign policy but not mesmerized by each new proposal for a costly weapons system. This new politics must forge a coalition for investment that is willing to trade present consumption for future prosperity; it must be a bipartisan grouping prepared to endure some pain today in order to avoid future economic calamity.''
Date: June 27, 1989
Debt: $2,857,430,960,187
Senator and presidential candidate Paul Tsongas railed against the debt at an MIT commencement speech: "But most of all, numbers -- numbers written in red. Debt. Real debt. Crushing debt. In the 1980s we have gone from being the world's largest creditor nation to the worst debtor nation the world has ever known. And all of this debt we give to you, our beloved children. America is on the verge of economic decline. We are now in an undeclared and unfelt and unrecognized battle for our future standard of living.
Date: February 29, 2001
Debt: $5,735,859,380,573
South Dakota Democrat Kent Conrad warned against tax cuts in a PBS interview: "You can't double count here. You can't credit the money to a trust fund then take a chunk of it and go use it for some other purpose. I mean, you know, the words say one thing, the numbers say quite another. And this is a very serious mistake because if we get it wrong now, there is no time to recover.
"You know, back in the 80s we could make fiscal mistakes and there was time to recover. It took us 18 years to do so but now if we make a mistake, the baby boomers start to retire in 11 years and the big surpluses turn into massive deficits. That is why we have to be cautious and conservative and not go overboard and spending, or tax cutting and put this economy back into the ditch."
Date: April 4, 2009
Debt: $11,146,566,832,297
Wisconsin Republican Paul Ryan has been proposing budget that would reduce the debt for over a decade: "The president’s budget which passed the House and Senate this week we’ll make the crisis much much worse. Rather than getting spending under control it -- spending out of control. Rather than keeping taxes low to create jobs it chases ever higher spending with ever higher taxes and results in ever higher debt. An unprecedented. Unsustainable. Increase in -- It doubles our national debt in five years in triples our debt in ten years. Put simply. The Democrats’ budget spends too much, taxes too much and borrows too much from our kids and their kids."
Date: June 18, 2010
Debt: $13,037,542,715,703
Former Fed Chair Alan Greenspan penned an alarming editorial in the WSJ:
The current federal debt explosion is being driven by an inability to stem new spending initiatives. Having appropriated hundreds of billions of dollars on new programs in the last year and a half, it is very difficult for Congress to deny an additional one or two billion dollars for programs that significant constituencies perceive as urgent. The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms. This is not new. For at least a quarter century analysts have been aware of the pending surge in baby boomer retirees.
We cannot grow out of these fiscal pressures...Only politically toxic cuts or rationing of medical care, a marked rise in the eligible age for health and retirement benefits, or significant inflation, can close the deficit.
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