On October 22, 1981—exactly 40 years ago today—America’s national debt hit $1 trillion for the first time.
Ronald Reagan declared in a televised speech that the nation needed a “warning” a few weeks prior to the country’s 13-figure debt milestone.
The national debt today exceeds $28 trillion. In the fiscal year that concluded at the end of last month, the country added another $2.77 trillion to the pile, the Treasury Department announced just this morning. The Congressional Budget Office anticipates that the country will add at least another $1 trillion to the deficit for just about every year in the foreseeable future—and that’s even without any new spending.
A trillion-dollar deficit was not a sign of danger.
The Washington PostThe newspaper’s coverage of 1981’s symbolic milestone has been a fascinating window into an unfamiliar world. According to the paper, the nation had incurred $1 billion of debt in Civil War. This was followed by $500 billion in mid-70s. The paper stated that half the trillion-dollar current debt was due to the past seven years. Post Not noted.
This is shocking! Every few months, half-a-trillion dollars of debt are accrued.
Of course it’s true that $1 trillion isn’t the amount of money it once was. This amount would have bought about $3 trillion of goods and services in 1981. It is best to calculate the nation’s debt in long-terms by comparing it with America’s Gross Domestic Product (GDP), which gives an approximate estimate of how big the economy of the United States for a year.
For example, in the 1980s the country’s gross national debt was only 40 percent of its GDP, even though it had surpassed $1 trillion. As this graph from Brian Riedl (a former Republican Senate staffer and deficit hawk) shows, the national debt now equals the country’s GDP. It is expected to reach nearly 200 percent by the middle century.
A useful method to determine the amount of national debt growing is to calculate how much the average American household would have to pay to repay it. The trend of recent years isn’t good.
The principal reasons the debt will grow is because of rising entitlement program costs and interest rates. Also, cutting discretionary spending won’t have any effect on the current level of debt.
Both the guilty and innocent parties are, in fact, each other. As the Gipper failed to heed his own warning, it was appropriate that the symbolic $1 trillion debt figure occurred during Reagan’s presidency. Reagan is an iconic figure of conservative values and has been revered by Republicans over the last 40 years. While his successors racked up much larger sums on the country’s credit cards, Reagan helped the government exceed not just the $1 trillion but the $2 trillion debt threshold.
Many Democrats are now not in agreement with President Bill Clinton’s warning that the nation must address its “big and long-term debt problems” or they will.
Clinton warned that the debt would consume a larger and more significant portion of federal funds than we prefer to spend on science, technology, education, and health care. He was the last president who reduced the nation’s national debt in a single fiscal period.
For today’s Democratic Party, the guiding principle is to believe that debt does not really matter as long as interest rates are low. In an influential paper, Jason Furman, former Obama economic advisor and Larry Summers, Clinton’s Treasury Secretary, argued that as long as federal debt servicing costs are below 2 percent, policymakers shouldn’t be restricted by “traditional ideas of a balanced budget.”
But the past 40 years would suggest that lawmakers have almost never been restrained by the idea of balanced budgets—a few brief interludes of fiscal sanity notwithstanding.
America took more than two centuries to acquire $1 trillion of public debt. That amount grew 28 times more slowly over the 40-year period. How long will it take to stop America spending money that it does not have?