Our Presidents and the National Debt
Burton Folsom, Jr. is the Charles Kline Professor in History and Management at Hillsdale College. His book The Myth of the Robber Barons is in its fourth edition.
During the last 75 years the United States has failed to balance its annual budget over 90 percent of the time. What’s worse, the government has spent money so recklessly that we now owe over $8.2 trillion, and Congress recently raised the debt ceiling to $9 trillion.
Such a trend is ominous because a country’s national debt is a mirror of its economic future and its national character as well. With our piles of IOUs, we borrow from the future to indulge the present. If we study our national debt, we can discover some generalizations that help us understand how our presidents and our national character have changed over time.
1. Our first presidents took the national debt seriously and handled it with courage and integrity.
Our nation began with dangerous financial liabilities. When we fought the Revolutionary War we borrowed over $75 million in cash and supplies from individual patriots, from all 13 colonies, and from France and Holland. Our Founders, led by President George Washington and his treasury secretary, Alexander Hamilton, were determined to establish the U.S. credit by passing a tariff and a whiskey tax that would generate the revenue to help retire our war debt.
Washington, in his Farewell Address, described public credit as “a very important source of strength and security.” He recommended that we “use it as sparingly as possible, avoiding occasions of expense by cultivating peace. . . .” Avoid “the accumulation of debt. . . ,” Washington urged, “by vigorous exertions in time of peace to discharge the debts which unavoidable wars have occasioned, not ungenerously throwing upon posterity the burthen which we ourselves ought to bear.” Not only did Washington wage the war, serve as president, and help establish our institutions of liberty, but he urged his generation to pay off the national debt as well.
Our first seven presidents were committed to Washington’s goal. They chipped away so steadily at the national debt that James Madison, one of those presidents and the “Father of the Constitution,” lived to see the entire debt eradicated. In fact, by his death in 1836, the United States had actually begun running a surplus.
How to handle the national surplus became a political issue that President Andrew Jackson had to address. “It appears to me,” Jackson said, “that the most safe, just, and federal disposition which could be made of the surplus revenue, would be its apportionment among the several states according to their ratio of representation.”
When Jackson’s suggestion became law, the effect was immediate and nationwide. The residents of the Michigan Territory, for example, frantically clamored for statehood so that they would be eligible to scoop up some of the overflow from the federal treasury. Washington’s dream of a creditworthy nation had become a reality.
2. Wars have spiked the national debt.
The national debt has not increased slowly; instead, it has increased sharply during major wars, starting with the Civil War. The earlier wars—the Revolutionary War, the War of 1812, and the Mexican War—all created small jumps in the national debt, but the presidents who followed them all whittled down those debts quickly. In the Civil War, however, the national debt skyrocketed from $60 million to $2.7 billion—more than a 45-fold increase, which is the greatest proportional leap of any war in U.S. history.
Interestingly, in the 50 years after the Civil War, from 1866 to 1916, the presidents were committed to restoring American credit, and the national debt was slashed from $2.7 billion to $1.2 billion. But World War I sent the debt spiraling again, this time to $24 billion by 1920. World War II added another digit to the nation’s debt, which leaped from $43 billion to $259 billion from 1940 to 1945.
Those war debts have had a strong impact on U.S. tax policy. The income tax was introduced in America during the Civil War, but it was removed shortly after the war in 1872. After the Sixteenth Amendment was passed in 1913, the new income tax had a top marginal rate of 7 percent. But five years later, in the midst of World War I, the top rate was hiked to 77 percent. It was lowered in the 1920s, but during World War II the marginal tax rate jumped to 90 percent. President Franklin Roosevelt also introduced the idea of withholding income (proposed by a Treasury staff that included a young Milton Friedman) and forcing the employers to do the paperwork.
3. Most presidents have run surpluses, not deficits.
In fact, from 1791 to 1931, we had annual surpluses over 70 percent of the years. After the Civil War, for example, we ran surpluses for 28 straight years. Oddly, those presidents who obtained the most dramatic surpluses have often been those most condemned in the leading presidential polls. In Arthur Schlesinger’s 1962 poll, four of the bottom five presidents—Coolidge, Pierce, Grant, and Harding—secured budget surpluses in each of their 20 total years as presidents. Under Franklin Pierce, for example, the entire national debt was cut almost in half. Under Harding and Coolidge, the national debt was almost slashed by one-third.
On the other hand, Lincoln, Wilson, and Franklin Roosevelt, whom Schlesinger’s historians ranked among the top four presidents, broke all records for budget deficits. It is astonishing but true that these three presidents incurred more debt in their administrations than the entire national debt of $259 billion in 1945. In other words, of the first 32 presidents, under 29 of them we had a budget surplus of $4 billion; under Lincoln, Wilson, and Roosevelt we had a budget deficit of $263 billion.
Granted, they were war presidents, but that is a key point. Yet Washington had fought a major war, and as president he wanted to pay off the debt from that war in his generation. Lincoln, Wilson, and Roosevelt did not do that and do not seem to have had any ambition to do so.
Modern presidents, those who have served since the 1962 poll, are eager to secure their place in history. They may realize that fame and adulation are no longer given to those who “use [public credit] as sparingly as possible.” Perhaps the slogan of the modern presidents could be, “It is better to have spent and lost than never to have spent at all.”
4. Regardless of war or political party, modern presidents have tended to double the national debt about every nine years.
Even as late as post-World War II (1945–1960) the national debt increased at less than 1 percent per year. But since the Kennedy era and the Schlesinger poll, we have had four Democratic and five Republican presidents. Under these nine men, the national debt has doubled almost five times, from $289 billion in 1961 to a newly proposed ceiling of $9 trillion. Whether the issue has been hurricanes, farm subsidies, or medical care (none of which is a subject for federal aid, according to the Constitution), all these presidents have spent first and asked questions later.
Should that pattern of doubling the national debt every nine years continue—and there are very few politicians who wish to stop it—our debt by the end of the 21st century will increase to about $9 quadrillion, or (even if the U. S. population triples) about $10 million per person.
In discussing public debt, Washington said that congressmen needed to bear responsibility for retiring the debt, and “that public opinion should cooperate” as well. Will we heed the advice of this thrifty president and demand accountability from our elected officials?
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Comment by Samuel Clemens on 21 January 2010:
Under our plutocratic government, where businessmen, who profit by government largess, and, in fact, promote it, there seems no way to prevent this from happening. This description of the past contains no suggestions for redeeming our future. I certainly can see no method, save a new US constitutional convention, packed with non-plutocrats, to turn this around.
Comment by Robert Kinnett on 21 January 2010:
Great article, but if I may, let’s talk in terms more relevant to today’s voters.
First, while the spirit of the text is dead-on accurate, talking about a $75 million after the Civil War might as well be talking about 75 million francs, lira or pesetas. We need to compare in today’s dollars.
Secondly, the absolute value of national debt is in such large dollar figures that they just don’t seem real. Tests have shown that a simnple translation into per capita figures.allow voters to grasp the numbers’ significance.
Having said all that, you be the judge. Here are the figures from above, translated:
Deficits:
(1796 G.W.) $75MM = about $4.00B*, or $800 per capita**
(1865 Lincoln) $2.7B = $143B, or $4,080 per capita
(1920 Wilson) $24B = $1.28T, or $12,000 per capita
(1940 FDR) $43B = $1.35T, or $10,200 per capita
(1945 FDR) $259B = $8.15T, or $53,900 per capita
(2010 Obama) = $12.3T, or $40,000 per capita
In summary, the devaluation of the dollar has enabled 20th and 21st century presidents to spend lavishly without having to raise taxes. An ignorant electorate has not only condoned this behavior, but blessed it with praise, honors and re-elections. H.L. Mencken was right. We got the government we deserved.
* Gold Price: 1790-1933 -> close to $20.67 (53.3x)
1934-1971 -> $35.00 (31.5x)
2010 -> $1103
** U.S. population: 1790 = 3,929,214
1800 = 5,308,483
1860 = 31,443,321
1870 = 38,558,371
1920 = 106,021,537
1940 = 132,164,569
1945 = 151,325,798
2009 = 307,006,550
Comment by Kevin on 15 October 2010:
“I certainly can see no method, save a new US constitutional convention, packed with non-plutocrats, to turn this around.”
What’s the point of a new constitution when politicians refuse to follow the current one?
Comment by jwilliams on 12 April 2011:
This is a good article but has a lot of holes in it. For example, when you attack Lincoln, Wilson, and Roosevelt, keep in mind that they were all war presidents as you said, but were NOT ABLE to do much about the debt incurred because all of them were either dead or incapacitated BEFORE the end of their term in office! It is ludicrous to blame them for such things when it was out of their control to do anything about it! I do feel that present-day expenditures have been ridiculous and Obama is a major present component here with this! He is on a record spending spree that doesn’t show any signs of letting up any time soon! If it is a just spending, then it is more understandable but some of his personal expenses and liberties he takes with America’s money is outrageous!
Comment by Paul Cholak on 11 May 2011:
Give financial power to the people….
Comment by Jon Ogden on 17 May 2011:
Adjusting for inflation, the beginning of the rise in the public debt – and the greatest increase in the growth of the debt – occurred under Ronald Reagan, though Obama is on track to eclipse that record.
Comment by oroo on 22 May 2011:
Interesting…Reagan ran up the debt by 185%, first Bush by about 80%, Clinton by 35% while ending in a budget surplus, second Bush in the 70% range and Obama is at 34% now…I don’t think Obama is anywhere close to catching Reagan and likely will not get there.
This also fails to put the debt into tue perspective of national income. After WW2 the debt was 110% of GDP. We are at about 70%, soon to be about 80%. I think we can handle it, but expecting to do it without raising any taxes would mean defaulting on interest payments on our loans somewhere down the line. I don’t want huge taxes by any means, but balancing the budget by sabotaging our middle class won’t really work. Either corporations or individuals need to pay more, or both even. Most jobs are not created by individuals who make millions, but by small businesses whose entire company makes a million /year. Part of the current problem is that 7% of our 2004 workforce is not paying any taxes right now, and giant companies are lobbying for handouts in their taxes. That costs us a lot of money.
Hell, i’ll be totally extreme and suggest that we get rid of individual income taxes and apply a slow graded corporate income tax only. That would allow more individuals to start small businesses and would not over burden the businesses by making the % low. Start at 10% on businesses that make under 1 million per year, 11% on anything over 1.5 mil and so on in incriments of $500,000 until the maximum rate hits 35% on money made over 125 million. Or increment the steps every million per year. That would not be overly burdensome to the vast majority of businesses and would take the burden off individuals…cause lets face it, business benefits more from the money govt spends than individuals do and they have far more income and usually are more stable than an individual.
Comment by Rick on 9 June 2011:
I am curious, why those on welfare who get their food, home, and health care paid for by the system, also get IRS rebate checks after (typically) not paying income tax in the first place. Why is the government considering to compromise the benefits of social security(that is owed about 7 trillion dollars from the Federal government), behind the lie of bankruptcy, but has the endless budget for continuing a war that was basically a warcrime of the previous administration. And why am I constantly being misrepresented by the politicians that claim dedication to their contituents
Our political parties rely on a polarized culture to perpetuate their political rubish. If all americans unite behind a single banner and throw our differences aside, our representatives will be forced to follow the example.
Comment by Sue Hanson on 21 June 2011:
“Our political parties rely on a polarized culture to perpetuate their political rubish. If all americans unite behind a single banner and throw our differences aside, our representatives will be forced to follow the example.” Correct! And we are g=beginning to see that – people from all political parties, lifestyles and income brackets are uniting behind Ron Paul, who has been warning us for years and has been ridiculed for his trouble and bravery in doing so. Now we are realizing that he has been right all along. While others strive to amass votes with empty (but grandiose) promises, or pander to the Bilderbergs or the UN, Ron Paul continues to spread truth and to adhere to the will of the people, as expressed in the Constitution.
Comment by noxx on 19 July 2011:
you forgot Bush. What was the debt in ’08. Let’s not leave out convenient facts LOL.
I detect a statistical error here coded id10t
Pingback by Tightwads vs. Spendthrifts | Kai's Coolidge Blog on 20 July 2011:
[...] an excellent and still timely 2006 article by Burton W. Folsom over at The Freeman on the changing presidential attitude towards debt over the [...]
Comment by Economic Liberal on 29 January 2012:
“Reagan ran up the debt by 185%, first Bush by about 80%, Clinton by 35% while ending in a budget surplus, second Bush in the 70% range and Obama is at 34% now…I don’t think Obama is anywhere close to catching Reagan and likely will not get there.”
LOL! Numbers can be fun!! Between 1980-89, the Federal public debt grew $1.4788 trillion. In Obama’s first 19-months, the Federal public debt grew $2.5260 trillion; Obama has allowed $1.0472 trillion more debt in 1/5 the time that Reagan did. Obama’s already beyond Reagan!!!! And, Obama hasn’t done anything with the money to help America or Americans, unlike Reagan.
Reagan’s deeds ended the Cold War; tripled the U.S. economy, grew Americans disposable incomes 215%, helped the S&P grow by 575%, helped to create about 3 million jobs on average per year, all over the 20 years following his presidency, and so on and so forth.
Source: http://www.heritage.org/research/commentary/2004/06/defending-the-reagan-deficits
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