Reprinted from Alternet.
by Joshua Holland
They say China is our banker, but did you know it holds less than a tenth of our outstanding debt?
Our public debt – now at around $14 trillion dollars ($14,233,559,283,692.40 as of this writing, to be precise) – has been in the news lately, but how we accrued it, who holds it and whether it represents a problem are not well understood.
In one sense, for better or worse, our growing public debt has put trillions into the pockets of the American people. There’s an economic principle known as “Wagner’s law,” which holds that as a country gets wealthier, its tax burden tends to increase. Wagner’s law makes perfect sense: in a poor country, citizens are happy to have a paved road; in a middle-income country, they expect a public school on that road; and in the wealthiest countries in the world, the public expects safe air-traffic control to guide them into an airport where they can catch a cab to a world-class public university. As the expectations of what we want government to do rise, so do the tax revenues that are necessary to pay for it all.
Wagner’s law holds true for every country in the world except the United States, where conservative economic discourse prevails. Thirty years ago the Right convinced a lot of Americans they could enjoy tax cuts without losing out on any of the services they’d come to expect. That’s a big part of why our public debt jumped from $997 billion when Reagan took office to over 14 times that number today.
We could have paid for everything as we went through higher taxes but we didn’t – in 2008,we ranked 26th out of the 30 countries in the Organization for Economic Cooperation and Development in terms of our total tax burden (the share of our economy we fork over to the government), coming in almost 9 percentage points below the average of the group of wealthy nations.
Here are five more fun facts about the national debt.
1. We’ve Always Been In Debt
Before the first session of the U.S. Congress came to a close, the public debt stood at more than $75 million, and since that time it has never been paid down. In 1835, we came close – that year, the national debt stood at just under $34,000.
The last time the public debt decreased was in the mid-1950s, so every year since we’ve hit a “record high” debt in dollar terms. But a better measure is how much debt we have in relation to our economic output, and that number peaked at around 120 percent of GDP during World War II.
2. The Chinese Are Not Our “Bankers”
It’s become conventional wisdom that central banks in China and Japan hold a ton of U.S. debt. In The Hillthis week, Tom Schatz, president of the conservative disinformation outfit known as Citizens Against Government Waste, offered some typical fearmongering, writing that the public debt will not only result in “a lower standard of living for future generations,” but that “the Chinese, who own the largest foreign share of U.S. debt, will have the American people ‘working’ for them.”
The reality is that, as of last year, China held 9.5 percent of our outstanding debt. The largest lender to the U.S. government is the people of the United States – we own 42.1 percent of the national debt in the form of Treasury bills held in our pension funds, 401(K)s, etc.
And 4.6 trillion – about a third – is held by the government itself. Almost 18 percent of the T-bills outstanding are sitting in the Social Security trust fund, earning interest and making the retirement program incredibly secure despite all the claims to the contrary.
3. Republicans Leave More Debt Than Dems
Between 1960 and 2010, federal spending as a share of the economy has bounced around within a fairly narrow range of between 17.7 percent (under Eisenhower) and 21.8 percent (during the first George Bush’s term in office). Republicans are just as happy to spend, but they run on tax cuts, and the result is that since the middle of the last century, contrary to the “tax-and-spend” label, it’s been Democrats who are far more conservative when it comes to keeping deficits under control than their Republican counterparts.
Although Congress has to share credit or blame for the budget situation at any given time, the numbers are fairly clear. As financial analyst Hale Stewart notedafter George W. Bush’s first term,
Ronald Reagan started his term with total debt outstanding of 930 million and increased total debt outstanding to $2.7 trillion. This is a 13.71% compound annual increase. He never balanced a budget.
Bush I started his term with outstanding debt of $2.7 trillion and increased total debt to $4 trillion. This is a 10.32% compounded annual increase. He never balanced a budget.
Clinton started with total debt outstanding debt of $4 trillion and increased total debt outstanding to $5.6 trillion. This is a 4.2% compounded annual increase. He balanced his last three budgets.
George W. Bush started with $5.6 trillion total outstanding debt and increased total outstanding debt to $10 trillion. That works out to a 9.8 percent annual increase – just slightly more than the rate it has grown during Obama’s first years.
4. You Never Paid for That Empire
It’s ironic – or a testament to the influence of the conservative message machine on our discourse – that discussion of the public debt so frequently centers on “entitlements” like Social Security (which hasn’t added a penny to the national debt). After all, we’re still paying for Korea and Vietnam and Grenada and Panama and the first Gulf War and Somalia and the Balkans and on and on.
Estimates of just how much of our national debt payments are from past military spending vary wildly. Economist Robert Higgs calculated it like this:
I added up all past deficits (minus surpluses) since 1916 (when the debt was nearly zero), prorated according to each year’s ratio of narrowly defined national security spending–military, veterans, and international affairs–to total federal spending, expressing everything in dollars of constant purchasing power. This sum is equal to 91.2 percent of the value of the national debt held by the public at the end of 2006. Therefore, I attribute that same percentage of the government’s net interest outlays in that year to past debt-financed defense spending.
In 2007, when Higgs did that analysis, he came up with a figure of $206.7 billion just in interest payments on our past military adventures.
5. Public Debt Is Not Just About Borrowing
While our public debt has allowed us to violate Wagner’s law, it’s important to understand that we don’t just sell bonds in order to borrow money. When countries with widely traded currencies like the U.S. issue bonds, they are considered the safest investments around, and are therefore issued, and purchased, regardless of the government’s cash-flow needs.
Joshua Holland is an editor and senior writer at AlterNet. He is the author of The 15 Biggest Lies About the Economy (and Everything else the Right Doesn’t Want You to Know About Taxes, Jobs and Corporate America). Drop him an email or follow him on Twitter.