Skip to content

National Debt Half What it Was in 1946

National Debt Half What it Was in 1946

February 13, 2011 SVadmin Comments 0 Comment

Editor’s note: Economist James Galbraith debunks the latest effort by deficit hawks to raise fears about the debt and deficit, and to undermine Social Security and Medicare.

Deficit Hawks Down: The Misconstrued “Facts” Behind Their Hype

Cross-posted from the Roosevelt Institute’s New Deal 2.0 blog.

by James K. Galbraith
Economist James K. Galbraith attends a Pete Peterson-funded road show.

The Fiscal Solutions Tour is the latest Peter G. Peterson Foundation effort to rouse the public against deficits and the national debt — and in particular (though they manage to avoid saying so) to win support for measures that would impose drastic cuts on Social Security and Medicare. It features Robert Bixby of the Concord Coalition, former Comptroller General David Walker and the veteran economist Alice Rivlin, whose recent distinctions include serving on the Bowles-Simpson commission. They came to Austin on February 9 and (partly because Rivlin is an old friend) I went.

Mr. Bixby began by describing the public debt as “the defining issue of our time.” It is, he said, a question of “how big a debt we can have and what can we afford?” He did not explain why this is so. He did not, for instance, attempt to compare the debt to the financial crisis, to joblessness or foreclosures, nor to energy or climate change. Oddly none of those issues were actually mentioned by anyone, all evening long.

A notable feature of Bixby’s presentation were his charts. One of them showed clearly how the public deficit soared at the precise moment that the financial crisis struck in late 2008. The chart also shows how the Clinton surpluses had started to disappear in the recession of 2000. But Mr. Bixby seemed not to have noticed either event. Flashing this chart, he merely commented that “Congress took care” of the budget surplus. Still, the charts did show the facts — and in this respect they were the intellectual highpoint of the occasion.

A David Walker speech is always worth listening to with care, for Mr. Walker is a reliable and thorough enumerator of popular deficit-scare themes. Three of these in particular caught my attention on Wednesday.

Image licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.

To my surprise, Walker began on a disarming note: he acknowledged that the level of our national debt is not actually high. In relation to GDP, it is only a bit over half of what it was in 1946. And to give more credit, the number Walker used, 63 percent, refers to debt held by the public, which is the correct construct — not the 90+ percent figure for gross debt, commonly seen in press reports and in comparisons with other countries. The relevant number is today below where it was in the mid-1950s, and comparable to the early 1990s.

But Mr. Walker countered that fact with another, which I’d never heard mentioned before: in real terms he said — that is, after adjusting for inflation — per capita national debt is now twice what it was back then.

The problem is that real per capita national debt is a concept with no economic meaning or importance. (No government agency reports it, either.) Even in the private sector, debt levels matter only in relation to income and wealth: richer people can (and do) take on more debt. Real per capita national income is well over three times higher today than it was in 1946 — so how could it possibly matter that the “real per capita national debt” is twice as high?

Next, Mr. Walker made a comparison between the United States and Greece, with the implication being that this country might, some day soon, face that country’s interest costs. But of course this is nonsense. Greece is a small nation that has to borrow in a currency it cannot control. The United States is a large nation that pays up in a money it can print. There is no chance the markets will mistake the US for Greece, and of course they have not done so.

Finally, Mr. Walker warned that “foreign lenders… can’t dump their debt but can curb their appetite” for new US Treasury bonds. This was an oblique reference to the yellow peril. The idea, when you think about it, is that the Chinese central bank will acquire dollars — which it does when China runs an export surplus — and then fail to convert them into Treasury bonds, thereby choosing, voluntarily, to hold dollars in cash, which earns no interest, instead of as Treasury bills, which do.

Mr. Walker did not try to explain why this would appeal to the Chinese.

Walker closed by calling for action tied to an increase in the debt ceiling; specifically for a hard cap on the debt-to-GDP ratio with “enforcement mechanisms,” which could include pro rata cuts in Social Security and Medicare benefits and tax surcharges. He did not specify whether the cap should apply to gross federal debt or only to that part of the debt held by the public (a number which the Federal Reserve can change, any time it wants, by buying or selling public debt). When pressed, in the question period, he would not even say what he thought the cap should be.

I waited for Ms. Rivlin to add something sensible. But she did not. Apart from some platitudes — she favors “serious tax reform” and “restructuring Medicare” — her interesting contribution was to restate Mr. Walker’s comment about “foreign lenders,” who might say “we’re not going to lend you any more money.” That this would amount to saying “we’re not going to sell you any more goods” seems — from a question-and-answer and brief exchange afterward — genuinely not to have crossed her mind.

The Fiscal Solutions Tour comes with a nice brochure, and even (in my case) with a flash drive containing Mr. Bixby’s powerpoints. But does Mr. Peterson think he’s getting his money’s worth? The President, in his State of the Union, mostly ignored him. The Bowles-Simpson effort (which he paid for in part) and the closely allied Rivlin-Domenici plan are fading from view. And as the House Republicans forge their own course, demanding radical spending cuts right now — for political rather than economic reasons, which they don’t even bother to explain — the tired and shabby arguments of these old deficit-worriers hardly seem connected, any more, to the battles at hand.

James K. Galbraith is a Vice President of Americans for Democratic Action. He is General Editor of “Galbraith: The Affluent Society and Other Writings, 1952-1967,” just published by Library of America. He teaches at the University of Texas at Austin.

Print Friendly, PDF & Email

Articles, Economics, Politics
NewDeal2.0

Post navigation

PREVIOUS
No Dirty Gold: This Valentine’s Day, Say No to Gold That’s Mined at the Expense of the Environment and Workers
NEXT
Vested Rights Granted to Lehigh Cement in Santa Clara County

Join Our Mailing List

Leave a Reply Cancel reply

Your email address will not be published.

PEACE IN UKRAINE

CLICK IMAGE BELOW TO WRITE ONLINE LETTER OPPOSING THE MINE

DONATE TO THE FOOD BANK OF NEVADA COUNTY

(CLICK IMAGE)

DONATE TO NEVADA COUNTY RELIEF FUND (click image below)

Subscribe to Sierra Voices Journal

Jack Kornfield: A Steady Heart in Time of Corona Virus (Part I)

Erika Lewis, Shaye Cohn, Craig Flory – Got A Mind To Ramble

“Everlasting Arms”

Tara Brach: A Steady Heart in Time of Corona Virus (Part II)

Recent Posts

  • An Apology, and an Explanation
  • NATO Chief Admits NATO Expansion Was Key to Russian Invasion of Ukraine
  • Stumbling Towards Old Age
  • Social Security Overpays Billions to People, Many on Disability. Then It Demands the Money Back.
  • The Truth About U.S. Foreign Policy

Recent Comments

  • Missouri v. Biden: Prelimary Injunction Important Victory for First Amendment (so far) on Matt Taibbi, An Example of Journalistic Integrity
  • “FDR Met With Stalin. JFK Met With Khrushchev. Nixon met with Brezhnev. Reagan met with Gorbachev. Can’t Biden Meet With Putin?” on THE Most Important Article I’ve Ever Posted to Sierra Voices
  • The Gathering Storm on Professor Jeffrey Sachs: “What you’re being told about this conflict and others is simply not true.”
  • If You Laughed at the Doomsday Clock Update, You Should Find This Hilarious on The Grim Poetry of Science
  • In Praise of Warriors, and Criticism of War on Celebrated to Death: Memorial Day Is Killing Us

Archives

  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • November 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • July 2018
  • June 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • March 2017
  • February 2017
  • January 2017
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • December 2015
  • June 2015
  • May 2015
  • April 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • January 2014
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009

Categories

  • Abortion
  • Afghan Trap
  • Afghanistan
  • Aging
  • AI
  • Alzheimer's
  • American Empire
  • Anti-Depressant
  • Anti-Semitism
  • Anti-War
  • Arms Sales
  • Articles
  • Atlas Obscura
  • Authoritarianism
  • Beavers
  • Black Lives
  • Black Lives Matter
  • Blog
  • Book Bans
  • Buddhism
  • Budget
  • Buskers
  • California
  • Capitalism
  • Carbon Offsets
  • Cartoon
  • Censorship
  • China
  • Chris Hedges
  • Climate Change
  • Cold War II
  • Compassion
  • Constitution
  • Corona Virus
  • Corruption
  • Cosmology
  • Costs of War
  • Coup
  • Covert Regime Change
  • COVID-19
  • Crimea
  • Dams
  • De-Dollarization
  • Democracy
  • Democrats
  • Depression
  • Disenfranchisement
  • Douglas Macgregor
  • Drones
  • Drought
  • Economics
  • Ecosystem Engineers
  • Education
  • Election Fraud
  • Electoral College
  • Empire
  • Environment
  • Extinction
  • Extraterrestrial Civilizations
  • Farming
  • Fascism
  • Fascist Populists
  • Feminism
  • Filibuster
  • Fire!
  • First Amendment
  • Flood Control
  • Floods
  • Food Insecurity
  • Foreign Policy
  • Forest Ecology
  • Forest Management
  • Fracking
  • Free Speech
  • Freedom of the Press
  • Gardening
  • Gender
  • Genocide
  • Global Warming
  • GOP
  • Great Movies
  • Grist
  • Groundwater
  • Halloween
  • Health Care
  • High Country News
  • History
  • Humor
  • Hunger
  • Idaho-Maryland Mine
  • Ignorance
  • Immigration
  • Indigenous Peoples' Day
  • Insects
  • Insurrection
  • Iran
  • Israel
  • Joy
  • Labor
  • Lobbying
  • Local
  • Lunar Influence
  • Marijuana
  • Masks
  • Media
  • Medical Care
  • Men
  • Men's Issues
  • Mental Health
  • Middle Class
  • Military Industrial Complex
  • Mining
  • MMT
  • Modern Monetary Theory
  • Moral Obligations
  • Music
  • Native Americans
  • NATO
  • Neocons
  • Neoliberalism
  • New Cold War
  • Nuclear Fusion
  • Nuclear War
  • Nuclear Winter
  • Nutrition
  • Oligarchy
  • Oysters
  • Palestine
  • Pandemic
  • Parenting
  • Peace
  • Peter Russell
  • Pharmaceuticals
  • Physics
  • Poetry
  • Police
  • Politics
  • Populism
  • Press
  • Propaganda
  • Putin
  • Race
  • Regime Change
  • Religion
  • Republican Derangement
  • Republicans
  • Reviews
  • Revolution
  • Right-wing terrorism
  • Rights of Nature
  • Rise Gold
  • Rivers
  • Roe v. Wade
  • Romance
  • Russia
  • Russiagate
  • Science
  • Scott Ritter
  • Slavery
  • Sleep
  • Smoke Inhalation
  • Social Security
  • Spineless
  • Student Debt
  • Summer
  • Supreme Court
  • Technology
  • The Hartmann Report
  • Trump Virus
  • Tuba Skinny
  • Twitter Files
  • Tyranny
  • Ukraine
  • Uncategorized
  • Unipolar vs. Multipolar
  • Vaccine Refusal
  • Vaccine Safety
  • Voting
  • War
  • War Crimes
  • War on Government
  • Water
  • Watersheds
  • Wells
  • Wildfires
  • Winter
  • Women's Issues
  • Work
  • Yemen
  • Yugoslavia

Meta

  • Log in
  • Entries feed
  • Comments feed
  • WordPress.org
© 2023   All Rights Reserved.