Debt: The Story of the National Debt

What matters is how big the national debt is compared to the national economy. As you can see in the graph, that ratio went down from the end of World War II until Reagan’s first budget. So what went wrong?

US national debt-to-GDP ratio. Who did it?

In 1981, supply-siders took over Reagan’s budget. Their supply-side “theory” said that cutting the taxes of people in high tax brackets, the rich, would increase government revenues. So they did. And since government revenues would increase, it was OK for Reagan to increase the military budget. As it turned out, lower taxes and more spending did just what you’d expect. And so the Republicans became the party of borrow-and-spend. And for 20 out of 20 budgets under Reagan and the Bushes, the Republicans raised the debt relative to the size of the economy.

When Bush handed the economy to Obama he had the debt growing at the rate of $3 trillion per year, and his last budget didn’t end for another eight months. A debt growing like this is hard to stop because when the government cuts spending or raises taxes, the two things that balance the budget, it hurts the economy. And since the economy Obama was handed was collapsing at the rate of 10 million jobs per year, that was not an option.

The green line in the graph shows what would have happened if the Republicans had balanced their budgets, as they claim should be done. Notice that Clinton would have reduced the debt even more. This is because much of his budget problem was interest on the debt accumulated by Reagan and Bush Senior. Without the burden, he would have almost finished paying of the entire national debt.