Recently the national debt was discussed in the dialogue section of The New York Times. As it turns out, when paying the debt down, we should do so very carefully and very slowly. America has only completely paid the debt one time (1835) but that was followed by one of the longest depressions in our history. Only six times have we balanced the budget and had a surplus for more than three years, followed by debt reduction and all followed by depressions. The Great Depression followed debt reduction of 41 percent from 1919-1930.
The national debt after World War II in 1946 was 121 percent of GDP (gross domestic product) but we had 27 years of the greatest prosperity in American history while still deficit spending. In those 27 years we had strong unions, financial regulation and at times tax rates as high as 91 percent on the rich.
Will the debt service hurt us? In 2012 the debt service ratio was 1.5 percent of GDP (3 percent is considered high). This is a lighter debt service burden than in all but two years from 1978 through 2008. Reagan quadrupled the national debt, and the debt service ratio was higher during his administration.
How you create debt is a more important question than the debt itself. The Bush tax cuts in 2001 and 2003, aimed mostly at the rich, and the war in Iraq created $5 trillion in debt, but we still had the current recession beginning in 2007. Bush signed TARP (the Trouble Asset Relief Program) so the banks and stock market got a boost but loans to small businesses dried up.
It is never wise or necessary to cut the budget deficit in a weak economy. The shutdowns or near shutdowns by the Republicans in 2010, 2011, 2012 and 2013 have created economic uncertainty while cuts in federal spending in the last three years have reduced growth by 0.7 percent, or $300 billion in lost output which cost about 2 million fewer jobs.
Georgia’s tax cutting and layoffs by Republicans have done nothing but move us from 25th down to 40th place in per capita income, and we’ve had the highest number of bank closures and among the highest home foreclosures.
What Republicans and tea party conservatives say about the national debt, tax breaks and who should get them is irrefutably wrong.