How “Voodoo” Caused Most of the National Debt
Here’s how national-debt policy was captured by Wall Street and went crazy. You can see exactly when it happened in this graph. You can even see George H.W. Bush predict it in the video clip below when he was running against Reagan — and then take it back when he became Reagan’s choice for VP.
World War II was looming, and the country was flat broke. But Uncle Sam was popular, the country patriotic, and all were happy to lend him money. Compared to the size of the economy back then, the debt soon outstripped even today’s debt, and we won the war. Then, without any to-do, we almost paid it off, until …
Something weird happened. When Ronald Reagan became president. He rode to office on complaints of an “out-of-control debt” that was as big as “a stack of $1000 bills 67 miles high.” And in eight years in office he added another 125 miles to that stack!
As the graph shows, the national debt was actually at its lowest point in 50 years compared to the US economy, but Reagan grew the debt much faster than he grew the economy. That’s why the graph shoots up when he takes office. No one had done that since Word War II, and Reagan had promised to balance the budget. That’s weird.
Debt: Total owed from past and present borrowing.
Deficit: This year’s borrowing.
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But one guy saw it coming and said so loud and clear. And years later, this first-class Republicn would say he was voting for Hillary Clinton (09/19/16). His name is George H. W. Bush, the 41st president of the United States.
He called Reagan’s plan Voodoo economics, and when it came to the debt, that Voodoo made a zombie out of Reagan and generations of Republicans. Unfortunately Bush lost the primary to Reagan, and Reagan made him vice president. So not long after he called Voodoo on Reagan, he had to deny he ever said it. It’s well worth 22 seconds of your time to watch this:
What is Voodoo Economics? (here’s more of the backstory)
Invented at a restaurant just off Wall Street by Wall Street journalists (and a kooky economist), its official name is “supply-side” economics. Don’t be fooled, in 40 years this has not become part of real economics. That’s because its central tenet is this:
“You cut taxes, and the tax revenues increase.” —Voodoo Economics
You gotta admit that sounds pretty weird. You also have to admit that if Reagan believed that, he surely would have cut taxes. And he did. If it turned out to be crazy (which it was) then tax revenues would actually have fallen, which they did. So Reagan proved Bush was right. Supply-side tax policy is voodoo.
With revenues down, the government was short of money and had to borrow like crazy, and the national debt went up.
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But come on. Nobody really believes such nonsense, least of all our presidents. Well, maybe you should watch this eight-second video from 2006.
Yes, that’s George Bush II. By 2006 he should have known better. One month after taking office in 2001 with a plan to cut taxes, he said he would “retire nearly $1 trillion in debt over the next four years. … the largest debt reduction ever achieved by any nation at any time.” Instead, the national debt went up by $2 trillion. But he remained under the spell of voodoo economics.
The same thing happened to him as to Ronald Reagan. He cut taxes, believed tax revenues would increase, but surprise — tax revenues went down. So the government had to borrow more. And the Debt, which had been going down, suddenly shot up. Once again it grew even faster than the economy and that’s why you see the graph going up in his first budget year.
Fool me once, shame on you. Fool me twice shame on me. Should we go for three times? You would think that after 20 years of Voodoo experiments turning out just like any sane person would expect, that at least the best and brightest Republicans would catch on. So here we are in 2015. Trust me again for 14 seconds and listen to Fiorina and Rubio:
As Carly says, this may seem crazy to you. But here are two of the brightest contenders in the 2016 Republican primaries repeating the same old Voodoo. When it comes to the debt, the GOP is the party of zombies.
The national debt in perspective
Consider what it means when the graph says 100%. It means the national debt equals one year of Gross Domestic (National) Product (GDP). So if we used the full value of what the US produces for one year just to pay off that debt, that would just do it. And 50% means the debt would be paid off in six months of using the full output.
That sounds outlandishly huge, but consider a family making $100,000 a year that buys a $250,000 house with 20% down and takes a $200,000 mortgage. No one considers this unusual or risky. But that family would be off the top of the graph at 200%. It would take all they made for two years to pay off their debt. And the US has a slight advantage over most families. It can print money. So there is zero chance of default.
And only about 1/4 of the national debt is owed to foreigners. Another 40% is owed to Americans, for example, pension plans own quite a bit of it. And the rest is owed by the US government’s “General Fund” to other Government Trust Funds, like the Social Security Trust Fund and the military’s pension fund.
Stop with the doom and gloom. If, as conservatives fear, the Chinese tried to bankrupt us by cashing in all their treasury bonds, we could simply print the money and pay them. Not a problem. And no, the high debt is not harming our credit. If you have bad credit, people will only loan you money at a high interest rate. Everyone in the world is willing to loan Uncle Sam money at almost zero interest. He’s got absolutely the best credit rating in the world.
Click for an explanation of the Green Line, balanced budgets, tax cuts and a bit of Keynesian stimulation.
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