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The recent history of the national debt under Presidents Clinton, Bush, and Obama

2011-07-06

For those who are shocked, shocked that our national debt is increasing at a rate of 1.5 trillion dollars a year, a little recap of the recent history of federal spending for the last fifteen years is in order.

Under President Clinton, who bargained with a Republican Congress and ended welfare as we knew it, the federal government’s budget was nearly balanced in the last two of his eight years: 1999 and 2000.  After President Bush was elected, that is after the Supreme Court decision that concluded the election process, he changed the federal budget in two ways.

First, he instituted a large tax cut, at a time of weak revenues, which immediately caused a deficit.  This occurrence is not contested–it was in all the papers at the time.  Second, he started the Iraq war under an extra-budgetary appropriation that was not counted against the regular budget but nonetheless dramatically increased outlays at a time that revenue was sagging badly.

Then, in 2007, one of the largest companies on Wall Street sold mortgage backed securities short, and the resulting crash threatened to overwhelm the ability of banks to respond.  President Bush proposed monetary subsidies to the banking industry that reportedly totaled eight hundred billion dollars, and these “bailouts” were hurriedly enacted into law by a thoroughly frightened Congress.  On the other hand, their emergency loans to motor vehicle manufacturers paid off well.

When President Obama came in to office, these subsidies and loans were a fait accompli.  It has been estimated that over half the current deficit is directly caused by Bush’s tax cut and the subsidies paid to the banking industry.  The rest is probably due to the poor economy, increased expenditures for everything, and weak tax revenues due to widespread cheating.

Therefore, the national debt is inexorably increasing; to force it to do otherwise would be to immediately throw thousands of government workers out of a job, particularly including soldiers, and to cancel multitudes of ongoing contracts that private industry depends on for services provided to the federal government.

It is unthinkable that Congress would not vote to increase the debt limit at this time, or any other time.  The consequences, in particular the dramatic increase in borrowing costs to the government, would be counterproductive to economic recovery, to say the least.

Therefore, the threat to refuse the debt limit increase is not realistic or reasonable.

As to the second issue, deliberate deficit spending: it is necessary due to the 2007 crash and recession, which all experts agree has been the worst since the Great Depression eighty years ago.  The recession is not over, and house prices are still declining.  It is only sensible for the federal government to stimulate the economy by any means necessary.

In good economic times, a balanced budget is necessary to avoid inflation, but in bad economic times deficit spending is needed to promote economic recovery.  It is indeed possible to grow your way out of a deficit, if you really do stimulate the economy instead of threatening to destroy it.

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