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The Debt Bomb Relighting the fuse: Putsch's legacy
by Bryan Zepp Jamieson
Zepp's Commentaries
June 12, 2004

Every once in a while, a right winger hands me an opportunity on a silver platter.

The other day, I wrote an essay in which I attacked the Laffer Curve - the notion that the lower taxes are, the better the economy does. Picking the economy under Clinton as a counter-example, I wrote, "And yet the economy grew, longer and stronger, than it did under Ronbo. AND he [Clinton]cut back on the deficit, rather than the cheap gimmick of borrowing trillions in order to appear robust."

A right winger piped up, asking me if the numbers 4.2 trillion and 5.7 trillion meant anything. They were, as you must have guessed just from context, the numbers of the national debt on the day Clinton took office and the day he left, respectively.

Well, gosh, I thought. I can't let this poor guy run around not knowing the context of my statement. Right wingers these days have enough to bear without me sitting back and grinning and letting them make fools of themselves. Someone really nasty might come along and embarrass them with a full set of numbers comparing Reagan and Clinton.

Someone like me. If you're going to leave someone twisting in the wind, it's no favor to hang them slowly, I always say. So here are the numbers I provided.

Year Debt Reagan Debt Clinton
First Year $ 997bn $4,171bn
Last Year $2,857bn $5,722bn

Year Annual Deficits - Reagan Annual Deficits - Clinton
0 - 78b -290b
1 -128b -255b
2 -208b -203b
3 -185b -163b
4 -212b -107b
5 -221b -21b
6 -149b + 70b
7 -155b +124b
8 -152b +236b

The "zero year" is the first year in office of the two respective presidents, and reflects the budget of the administration prior - Carter and Bush I, respectively. The -78b of Carter's last year was the all time record in America's nearly 200 years of budgets. It took 191 years to amass the first trillion in debt, and Reagan added the second trillion in just five years.

The Reagan boom, which ran from 1983 to 1990, was fueled by mountains of debt. During that time he lowered taxes massively on the upper class, and when the debt exploded, raised taxes [mostly on the middle class] in years three and five.

Clinton's economic boom began about six months before he took office, after Bush raised taxes again in a futile effort to curb the red ink (the $290 billion deficit in Bush's final budget set another record, one that stood for ten years). Clinton, over despairing yowls from right wingers that such an action would destroy the economy and leave the Dow quivering fretfully at 1,000 points, then raised taxes on the wealthy. The economy continued to rebound slowly, and the annual deficits began to shrink.

Clinton added six million jobs in his first term, and an amazing 16 million in the second term, even as the deficits turned into surpluses. Only FDR had a better job creation record - or oversaw a stronger economic rebound. Of course, he started out with a lot more room for improvement, too. When an economy features a third of the working force idle and nearly a quarter of the states no longer using American currency, there's pretty much only one direction the economy can go, and remain an economy.

The Bush I and Putsch numbers are even worse than Reagan's. George senior inherited a budget that was on the verge of fiscal collapse and waited until late in his term to take strong measures, and of course Putsch's approach to the budget is nothing short of insane.

Tom DeLay, a man willing to say anything in public for the sake of ideology, said that of course you lowered taxes in times of war. Fortunately we aren't at war, not really, or America would be a happy memory, a country in receivership with a dead economy by now. In real wars you may not be able to raise taxes, because you have to keep productivity as high as possible, but lowering them is suicide. In world war two, budget outlays vastly outstripped revenues, reaching as much as three dollars spent for each dollar that came in (1943 featured $24 billion in revenues, $78 billion in outlays). During the Civil War, outlays reached as high as ten to one over revenues.

If you are making $1,000, and spending two or thee times that amount, does it make sense to reduce your income?

One factor that made Clinton's achievement all the more remarkable: Between 1952 and 1978, interest on the national debt ran within a half point of 10% of budget outlays either way, pretty consistently. By the time Reagan/Bush I were done with us and had given us round one of supply-side economics, interest on the national debt was at 21% of budget outlays. That meant that the interest on the debt as a portion of the budget had more than doubled, and Clinton only had 79 cents on each dollar to spend usefully, instead of 90 cents. The rest all went to banks, bondholders, and investment houses.

After three years of Putsch, we have annual deficits of nearly half a trillion (Putsch is adding to the debt at a rate that accumulates in one year what took a full century before Reagan). Financing the debt takes about 24% of the budget, and that's with interest rates at 50 year lows. Interest rates are now rising, caused in part by inflationary pressure, caused in turn by the latest energy crisis.

According to Laffer, the economy should be booming. Reduced taxes, and war to promote monetary circulation. At least, that's the theory.

And yet it isn't happening. Instead the country is once again in a death spiral of debt, and this time, with a lunatic at the helm and ideologues who don't really give a shit about America controlling the GOP in Congress, there's been no turning back from this fiscal madness.

So what went wrong with the Laffer Curve. Paul Krugman of the New York Times, an economist of some note, stated it very simply. "Deficits matter." Big debt is a drag on any economy, and especially on a fundamentally weak economy like we have now.

The cure? Kick the bums out. And hope the Kerry administration has the political courage to take some hard steps to alleviate debt.

Posted: June 15, 2004


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