Every couple years Republicans on the campaign trail remind you how much they want to reduce government and cut spending. But once in office, they seem to find it awfully hard to stop spending all that money that’s just sitting there (or waiting to be printed via quantitative easing). I am currently in search of a budget-cutting Republican. Let me know if you find one.
What really shook my fiscally conservative worldview was the announcement of the Paycheck Protection Program (PPP). This is essentially an interest-free loan from the government for small business to cover payroll during the pandemic lockdown. If you are a small business owner like me, this is the first real access to working capital since 2008. I couldn’t get to the government trough fast enough. And it was painless. And I justify it by referencing the billions going to bail out the airlines and how lousy it was that Ruth’s Chris and publicly traded companies snapped up the first round of PPP funding.
Government spending that immediately impacts your bottom line is so, so easy to get used to.
The Republican Party been getting used to increased government spending for the last century or so, or for over two-thirds of its life. And the U.S. is about to break records in fiscal year 2021 with Republicans controlling the White House and the Senate.
Starting with the establishment of federal income tax in 1913, government spending has been steadily growing. At the height of the Great Depression in the 1930s, massive government spending at the direction of President Roosevelt was employed to fill the gap in the devastated private sector, and some of those programs remain in place 80+ years later (like Social Security, which makes up nearly a quarter of our national budget).
The spending increased further with our entry into World War II in 1941. The private job market soared—with government funding via contracts to produce war materials. Because, freedom! Our nation ran its largest ever budget deficits (the highest in 1943 totaled over a quarter of GDP, 26.9%) during the war years. And President Eisenhower made the decision to keep much of the wartime economy going by continuing and escalating the postwar arms race against the Soviet Union. Because, communism!
Federal spending picked up again in 1965 during the Johnson administration. The establishment of Medicare and Medicaid in 1965, the moon landing project (take that, Soviets!), and the Vietnam War all drove deficits up in the late 60s, but we returned to a balanced budget in 1969 under President Nixon. 1969 would be the last deficit-free year we’d see until 1998.
The 1970s oil crisis, stagflation, and multiple years of recession kept the U.S. in the red through the Nixon, Ford and Carter administrations until the election of President Reagan, who upped the ante and ran the largest deficits seen since the end of World War II. But that was cool because we were spending it to finally defeat the Soviet Union, at least economically.
We did wind up bankrupting the Soviet Union, subsequently breaking 45 years or so of Communist rule in Eastern Europe. But we didn’t stop running deficits although they calmed down a bit under Bush 41. President Clinton achieved a balanced budget in 1998 for the first time in almost 30 years.
You know the rest. Nine months into President G.W. Bush’s administration, 9/11 happened. Cue up the Global War on Terrorism, which we are still fighting. That was it. We’ve run deficits every single year since 2001. They peaked in President Obama’s first term, leveling off through his second term and President Trump’s current term.
In the first four months of 2020, the government has hemorrhaged $3.5 trillion into the economy. That’s completely outside the regular budget process, so we’ll have to keep up the annual spending as well.
We fund these deficits by borrowing. Our national debt at the end of September 2019—before the 2020 budget and the pandemic stimulus—totaled $22.67 trillion. More to the point, our total debt is 105.8% of GDP. That means everything the world’s largest economy makes in a year couldn’t pay our debt. The highest debt-to-GDP-ratio in history occurred in 1946 when it reached 119%. That record is expected to be beaten in 2020.
If this picture depresses you, absolutely do not read “The Mandibles: A Family, 2029-2047” by Lionel Shriver. It’s a dystopian novel set in the U.S. after the world’s banks quit accepting U.S. debt. Cliff Notes version: the U.S. becomes a Third World country in like two election cycles.
Don’t get me wrong. I think it’s important to prop up the world’s largest economy. In the short term, massive debts have little impact on governments. The number to watch is interest on that debt. Should interest payments reach 12% of GDP, you’re in deep water. Fortunately, we are still under 2% in the U.S. Also, the 74% of the national debt is held by taxpayers, with the Social Security Trust Fund owning the most Treasury notes by a long shot, followed by pension funds. So if the world decided to call in our debt tomorrow, we’d probably be okay.
However, to keep this much money in our economy, the Federal Reserve has had to keep interest rates close to zero. That’s cool for the big guys (large corporations do almost nothing with their own money), but when my mother sold her house in Silver City, there were close to no interest-bearing options for traditional savings vehicles. The only way it seems possible to get a return is to pump that money back into the market, which will be underwritten by the Fed ad infinitum.
I know my household can only borrow so much before we go under. When the U.S. reaches that threshold, will our leaders be willing to put on the brakes?
Merritt Hamilton Allen is a PR executive who runs her business on a cash only basis and a former Navy officer. She lives amicably with her Democratic husband and Republican mother north of I-40 where they run two head of dog, and one of cat.