While rumblings about our national debt have occurred on and off over...well, as far as I care to remember, the majority of those rumblings always came from the right during a democratic presidency, after the right ran the debt through the roof in the years prior to that democratic presidency. However, the democrats (and republicans) in Congress can't be let off the hook, as it's they who are responsible for the country's pocketbook. While today is no different, the Tea Party movement who seem to be bent on government destruction at all levels, and European issues have raises the rumblings to a new tempo.
When dealing with our debt, it helps to obtain some historical perspective. What is often stated, for impact effect, is debt as a total dollar amount. But total dollar amounts are misleading if not compared to something else as reference. Debt as a percentage of our Gross Domestic Product (GDP) is a better guide to where we are, and where we've been. Post WWII our debt to GDP was 127 percent, due largely to the deficit spending used to help bring us out of the depression and of course the spending on the war. From that high water mark of 127 percent the debt to GDP slowly decreased over the ensuing three and one-half decades to 33 percent by 1981.
What's interesting is that Ronald Reagan ran on the "high debt" in 1980, comparing the "dollar amount" of 1980 to the "dollar amount" of 1965. A bit deceptive to say the least. Then in the eight years of Ronald Reagan the debt as a dollar amount almost tripled and the debt to GDP went up to roughly 55 percent. Aside from a claw back of a few percentage points in the late 90's, that percentage has been going up ever since, to today's 100 percent.
But it seems this 100% is causing more of psychological reaction than a reaction built on reason. While the debt is nothing to just blow off, it shouldn't be our main concern when trying to dig out of the deepest recession since the Republican Great Depression of 1929.
If the market was truly concerned about the debt, we would be seeing the cost of borrowing going through the roof and equity prices heading the opposite direction. But we're seeing the complete opposite of this. In fact we're at record borrowing lows. The 10 year T-bills are at 2 percent, and core inflation is going nowhere. Our real problem is a liquidity trap, as interest rates can't get much lower.
In my view, what we should be concentrating on right now is not austerity measures, which will tend to actually slow the economy and increase debt even more, but we should be focused like a laser on infrastructure building. Concentrating on repairing our roads, bridges, electrical grids, internet grids, etc. will put people to work on engineering projects, not just jobs filing potholes or racking leaves, allowing them to learn while making money. The money they make will be spent in the private market, causing a multiplier effect, and as they roll off these infrastructure repair/building jobs, the private sector will begin to hire due to the increased demand for goods and services caused by people actually having money in their pockets and out spending.
And for those concerned with spending more money, keep in mind that millions of people put back to work, making money and out spending that money back into the private sector will grow the nations GDP, and reduce the deficit over the long haul. Spending as percentage of GDP in this county is at 39 percent. You would be hard pressed to find a country who's spending is below 25% that you would be happy to live in. Burma, the Dominican Republic, El Salvador, and Guatemala comes to mind. Recently the republican icon Grover Norquest said he would like to see spending brought back in line with that of 1900, which was around 8%. That's great, if you don't mind going to the bathroom in a hole in the ground out in your back yard, not having air transportation, or electricity provided to rural areas, among hundreds of other things we enjoy today. I for one like my reliable electricity, my FAA regulated air transportation, and my indoor plumbing among hundreds of other 21st century conveniences.
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