Focus on America's leading economic illusion-du-jour:
deficits don't matter. Here, once again, we climb a pile of
bones to get a clearer view. This is not the first time a
nation has gone head-over-heels into debt.
"Since Prime Minister Sir Robert Walpole's introduction of
the funding system in England during the 1720s," writes H.A.
Scott Trask for the Mises Institute, "the secret was out that
government debt need never be repaid... Walpole's system
proved its worth in financing British overseas expansion and
imperial wars in the eighteenth and nineteenth centuries. The
government could now maintain a huge peacetime naval and
military establishment, readily fund new wars, and need not
retrench afterward. The British Empire was built on more than
the blood of its soldiers and sailors; it was built on debt."
The new system was slow to catch on in America. Jefferson was
against it. In 1789, in a letter to James Madison, he
wondered whether "one generation of men has a right to bind
another." His answer was 'no.' "The earth belongs in usufruct
to the living," he concluded. "No generation can contract
debts greater than may be paid during the course of its own
existence."
But dead men don't talk and the unborn don't vote.
Politicians in America - just as those in Britain, Italy and
Germany - gradually came to see that they could get the
benefits of spending money in the present, while passing on
the debts to the next administration and the next generation.
Then, as now, war provided cover for excess spending. First,
there were the debts from the Revolution itself... which were
paid down quickly. Then came the War of 1812, War with
Mexico, and the Civil War. Each time, spending was increased,
debts were taken on, and then... after the war... the debt was
paid down, or paid off completely.
WWI saw federal debt explode from $3 billion to $26 billion.
Presidents Harding and Hoover paid it down to $16 billion.
But then came the Depression, Roosevelt, and WWII. By 1945,
federal debt had reached $260 billion. But then came
something new. The war did not end. It continued as "The Cold
War"... which meant, rather than paying down the debt, it was
increased.
Under Ronald Reagan, America's debt seemed on course for
Mars. Less than $1 trillion in 1980, it soared to $2.7
trillion before Reagan left office. One might have expected
some relief after the Cold War was over. But the habit of
getting something for nothing is hard to break. By the time
George W. Bush took office, the debt had risen to $5.7
trillion.
Mr. Bush, a conservative, might have seized the opportunity
to pay down the debt. The nation was at peace and expected
huge budget surpluses. He promised as much when he stood
before a joint session of Congress in 2001 and announced his
budget.
"That night," Paul O'Neill tells us in his book with Ron
Suskind, The Price of Loyalty, "Bush stood before the nation
and said something that knowledgeable people in the U.S.
government knew to be false."
But the paradox was there. Generations of Republicans had
promised balanced budgets. Only war had permitted them to
wriggle off the hook and continue running up debt. With no
war, the Republicans just squirmed. Then came a remarkable
event: 9/11. All of a sudden, another, strange war was
announced... a war on an enemy no one could find on a map... a
war on "Terror." Now, the war, the spending and the debts
could go on forever.
In the following 24 months, the Bush Administration added
more debt to the nation than had been built up in the first
200 years of its existence. Jefferson and the generations of
dead men who paid their debts must weep in their coffins. The
tadpoles of the unborn must shiver. |
