The Federal Debt


Keynesians, of course, took credit for the strong economic growth in that decade and pointed to the falling ratio of debt to GNP as proof that debt didn’t matter to a sovereign power. Indeed, they talked about being able to “fine-tune” the American economy, mechanics tweaking it here and changing the air filter there to keep it running at peak efficiency.

In fact the Keynesian economic model, or more precisely all the Keynesian economic models, for they were many, were about to run off the road altogether in the high-inflation, high-unemployment economy of the 1970s. It was an economy that Keynesians thought to be impossible in the first place. Meanwhile, political events and new political conditions were beginning to interact in Washington, and the budget of the U.S. government, the largest fiscal entity on earth, was about to spin out of control.

“The Most Inefficient and Expensive Barnacle”

The Founding Fathers deliberately established an eternal power struggle between the President and Congress. They gave to Congress those decisions, such as how much spending to allow, that reflect the diverse interests of the people. Equally they gave the President the powers that are best exercised by a single individual, such as command of the military.

Over the years since Washington took office, power has flowed back and forth between the White House and Capitol Hill several times. In great crises, when a strong hand at the tiller was obviously needed, Presidents like Abraham Lincoln and Franklin Roosevelt were able to get pretty much what they wanted from Congress. So too could Presidents of extraordinary personality or political skills, such as Theodore Roosevelt and Lyndon Johnson. But when times were good or the White House was occupied by a weak President, like Ulysses S. Grant, Congress has tended to steadily encroach on the President’s freedom of action.

Nowhere have the power shifts between President and Congress been more noticeable in the twentieth century than in regard to spending. It was only in the aftermath of World War I that the federal government began for the first time to develop an actual budget to facilitate looking at the whole picture, not just the sum of all congressional appropriations. Until 1921 each executive department simply forwarded its spending requests to the Secretary of the Treasury, who passed them on in turn to the appropriate committee in the House. (The Constitution mandates that all revenue bills must originate in the House. By convention, spending bills originate there as well, giving the House the dominant congressional say in fiscal affairs.)

After the Civil War both houses of Congress had established appropriations committees to handle spending bills. Members who were not on these committees, however, envied the power of those who could dispense money—then as now the mother’s milk of politics—to favored groups. By the mid-1880s eight of the fourteen appropriations bills had been shifted to other committees. A former chairman of the House Appropriations Committee, Samuel Randall, predicted disaster. “If you undertake to divide all these appropriations and have many committees where there should be but one,” he wrote in 1884, “you will enter upon a path of extravagance you cannot foresee … until we find the Treasury of the country bankrupt.”

Time would prove Randall right, in fact more than once. By 1918 some departments had appropriations that were decided on by two or more committees, often working at cross-purposes. Many in Congress were disgusted with how such important matters were handled. “The President is asking our business men to economize and become more efficient,” Rep. Alvan T. Fuller declared in 1918, “while we continue to be the most inefficient and expensive barnacle that ever attached itself to the ship of state.”

In 1920 the House, by a bare majority, restored exclusive authority on spending bills to its Appropriations Committee, and the Senate followed suit two years later. But the House Appropriations Committee was considerably enlarged and split into numerous subcommittees that dealt with the separate spending bills. The committee as a whole usually had no practical choice but to go along with the subcommittees’ decisions. Power over individual appropriations therefore remained widely dispersed, while the ability to control and even determine total spending remained weak.

Meanwhile, in 1921 Congress passed the Budget and Accounting Act. This established the Bureau of the Budget, an arm of the Treasury Department, and the General Accounting Office, an arm of Congress empowered to audit the various executive departments and to make recommendations for doing things cheaper and better.

The executive departments now had to submit their spending requests to the Bureau of the Budget, which put together revenue estimates and a comprehensive federal spending plan before the requests were transmitted to Congress. By establishing the Bureau of the Budget, Congress gave the President dominating influence over overall spending. Because Congress lacked the bureaucratic machinery, it had no choice but to accept the President’s revenue estimates and could do little more than tinker with his spending proposals.