The Federal Debt

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But, of course, Lincoln was right, and it is not possible to fool all of the people all of the time. When Ronald Reagan ran for President in 1980 on an antitax, antigovernment platform, he swept out of office an elected President for the first time in forty-eight years and the Democratic majority in the Senate, for the first time in twenty-six. But while Reagan was able to push through both tax reduction and reforms—indexing brackets, for instance, so that inflation no longer automatically raised taxes—he achieved real spending limitations only in the first year of his Presidency. Thereafter his budgets were declared “dead on arrival” as soon as they reached Capitol Hill.

And Congress provided no coherent substitute. Indeed, more than once Congress was unable to enact a single appropriation bill before the start of the fiscal year, October 1. To avoid shutting down the government, it had to pass so-called continuing resolutions that allowed federal departments to continue spending at current levels.

President Reagan was determined to fund the Star Wars project he initiated and to continue the buildup of the military that had begun in the Carter years. He was able to get these expensive programs through Congress, and they finally helped bring victory in the Cold War. But Congress was unwilling to cut spending elsewhere, while the cost of the now-myriad entitlement programs ratcheted upward in real terms year by year.

So federal spending continued to rise without relation to revenues. The result, coupled with the huge bailout required by the savings and loan debacle, was an avalanche of deficits. In the 1980s debt again more than tripled in nominal dollars, as it had in the 1970s. But this time inflation did not cushion the blow nearly so much, and debt more than doubled in real terms. As a percentage of GNP the national debt increased from 34 percent to 58 percent, the highest it had been in three decades.

Numerous “summits” and “budget deals” between the President and Congress were held in the 1980s and 1990s, and numerous “reforms” were agreed upon. But none of them addressed the root of the problem. Indeed, 1985 was the year the budget deficit became a major political issue and the first of the laws meant to bring spending under control, known as Gramm-Rudman, was enacted. But that year Congress also initiated no fewer than 54 new government benefit programs, bringing the total number to 1,013.

 
Budget “reforms” of the 1980s and 1990s amounted to business as usual today with spending cuts promised for tomorrow.

Stripped of rhetoric, the attempts to rein in spending amounted to little more than business as usual today with spending cuts promised for tomorrow. None of them produced any lasting reversal of the trend of higher and higher deficits. In the first three years of the 1990s the debt-to-GNP ratio rose another 10 percentage points, to more than 68 percent.

The reason was simple enough. The self-interest of members of Congress in getting re-elected had become intimately intertwined with more and more spending—the quid pro quo of PAC contributions—at the price of prudence and the national interest. The utter congressional domination of the budget process therefore ensured that spending would only increase.

In 1992, with the people clearly unhappy with how the country’s affairs were being handled, Bill Clinton ran for President on a platform of “fundamental change.” A minority of a deeply divided electorate chose him and his platform, rejecting an elected President for only the second time since Hoover lost to Roosevelt sixty years earlier and giving a third-party candidate a higher percentage of the vote than any third-party candidate since Theodore Roosevelt ran as a Progressive in 1912.

But an ossified congressional majority, while paying lip service to restraint, in fact resisted any change in the status quo of how Congress worked, because it would have meant a change in their power. The Madison Effect held them in its grip. The very day after the 1992 election, the congressional leadership flew to Little Rock and advised President-elect Clinton to downplay the congressional and structural reforms that were part of his program, in order to get the rest enacted.

Clinton, in what turned out to be one of the biggest political misjudgments of the twentieth century, agreed. It was to be business as usual in Washington for two more years. But only two years, it turned out. Still another “budget deal” with Congress to curb the federal government’s spending addiction was worked out in 1993, but it was a near carbon copy of the 1990 budget deal that had been an unmitigated failure. This time the Republicans would have none of it, and it passed with no GOP votes whatever. Indeed, the recent decline in the size of the federal deficit, widely touted as the result of the newest budget deal, has been in fact largely due to the sale of assets taken over from failed S&Ls. Even the Clinton administration predicted that the deficit would begin rising again soon.