The Origin of our Debt: The ABCs of Where It Came From And Why

The escalating national debt includes approximately $14 trillion in debt by FY2010, and another $44 trillion in unfunded liabilities (meaning, Social Security, Medicare and entitlement programs that are unfunded in the out years). By next year, the gross federal debt will, for the first time since World War II, equal 100 percent of gross domestic product (we owe as much as we produced).

To accurately assess how our debt became so astronomical so quickly, it is necessary to ask how the debt grew and who grew it. This is a politically loaded question, though the facts of the debt itself are not debatable. Each political party blames the other for the debt. If the debt escalated while the party’s president was in office, they will blame the Congress possibly governed by the other party, or they will blame economic downturns. If the debt grew at a slower pace or turned to a surplus while a president was in office, the other party will seek to give credit to the Congress or other economic factors. In short, it’s hard to win these battles. But the numbers don’t lie. The numbers are in the table below, and ultimately the President does bear responsibility politically if not fiscally for these increases and decreases in debt — if for no other reason, the president is the one person we can blame because they held the power of the veto pen. In many situations, they deserve much of the blame because their Administrations proposed the budgets that resulted in the debt increases.

Perhaps Democratic presidents just got lucky — Obama will not be one of the lucky ones — but it generally has been Republican presidents who were responsible for drastic increases in the federal debt. As the chart below reveals, the federal debt was minimal until President Reagan ballooned the debt by tripling it during 1980-1988. The debt largely increased in these years because of the economic downturn of the early 1980s, the Reagan tax cuts, and the expanded military budget which sought to defeat the Soviet Union and win the Cold War, which arguably, it did. By the end of the Reagan presidency, debt grew at a smaller pace because of the upturn in the economy. The debt escalated in smaller increments during the Bush years.

The debt again rose in the economic downturn of 1990 and 1991, but it was Clinton’s 1993 budget and the booming information superhighway which paved the way (through an increase of taxes on the wealthy) to the improvement in the debt by Clinton’s second term. The Republican Revolution of 1994 and the reelection of the moderate Clinton brought an unlikely partnership that reduced the size of the federal government to its lowest level since World War II and turned deficits into surpluses by the late 1990s.

It was the aim of President George W. Bush to run a “compassionate conservative” government, but the events of 9/11 forced Congress and Bush to vastly increase federal spending on national security. Bush and Congress also cut business and personal taxes until 2010 with deficit spending (money that did not exist), and Bush prosecuted two wars in Iraq and Afghanistan that have now cost the nation almost $1 trillion. Bush also initiated the TARP bailouts of 2009. By the end of the Administration in 2008, Bush had quadrupled the national debt.

Faced with an economic crisis America had not seen since the Great Depression, President Obama signed a $700 billion economic stimulus package that was deficit financed, lent $700 billion to financial institutions through the TARP, and purchased a majority share of General Motors. He also has twice escalated the number of troops in Afghanistan. This resulted in the largest deficit of the federal government in any one year since World War II, and it promises to force up debt spending to an unprecedented 100 percent of GDP by next year.

In summary, until Obama, it largely has been Republican presidents who have presided over large escalations of the current federal debt. This has happened for at least three reasons. First, and it goes without saying, economic downturns or national crises beyond their control happened on their watch. But secondly, these Republican presidents most often cut taxes and increased military spending in drastic fashion. And in the case of both Bush presidencies, the president failed to curtail the growth of federal discretionary spending while they increased spending on tax cuts and the military.

This is not a political point, however. Most of us who lean towards progressive politics understand that President Obama was faced with the most unusual of circumstances, and most economists would not disagree that some government stimulus funds were needed to stimulate the economy and free up frozen credit. Regardless of circumstance, the Obama Administration certainly has presided over the largest increase in federal spending in modern times.

What is in the past is water under the bridge, but perhaps those of us who are voters should pay more attention to which party tends to drive up debt and what circumstances give rise to it. At the end of the day, all of us are responsible, and we all hold the tab. We all must confess to wanting more from the government than we prefer to pay. At some point though, the party has to end. The only question is who is going to be left to clean up the mess?

Here are the CBO numbers on the federal debt, year by year:

Year Gross Debt in Billions [9]
1910 2.6 n/a
1920 25.9 n/a
1930 16.2 n/a
1940 43.0 52.4
1950 257.4 94.1
1960 290.5 56.1
1970 380.9 37.6
1980 909.0 33.3
1990 3,206.3 55.9
2000 5,628.7 58.0
2001 5,769.9 57.4
2002 6,198.4 59.7
2003 6,760.0 62.6
2004 7,354.7 63.9
2005 7,905.3 64.6
2006 8,451.4 65.0
2007 8,950.7 65.6
2008 9,985.8 70.2
2009 (est.) 12,867.5
2010 (est.) 14,456.3
2011 (est.) 15,673.9
2012 (est.) 16,565.7
2013 (est.) 17,440.2
2014 (est.) 18,350.0

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