The Federal Debt (November 1995 | Volume: 46, Issue: 7)

The Federal Debt

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Authors: John Steele Gordon

Historic Era: Era 10: Contemporary United States (1968 to the present)

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Subject:

November 1995 | Volume 46, Issue 7

The federal government was still in the process of establishing itself in 1792 and did not have a good year financially. Total income was only $3,670,000, or 88 cents per capita. Outlays were $5,080,000. The budget deficit therefore amounted to fully 38 percent of revenues. The next year, however, the government sharply reduced expenses while enjoying increased tax receipts and showed its first budget surplus. Except during periods of grave economic or military crisis, the government would never again run up so large an annual deficit in terms of a percentage of total revenues.

Not, that is, until the peaceful and relatively prosperous year of 1992. That year, the federal government had revenues of $1.076 trillion and outlays of $1.475 trillion, a budget deficit equaling 37 percent of revenues. Everyone, conservative and liberal alike, agrees that something is terribly wrong with how the United States government conducts its fiscal affairs today. The last eighteen years of the nation’s history have been marked by a more than 25 percent increase in federal revenues (in constant dollars) and the collapse of our only significant external military threat. Yet, in those years, the United States has spent as much of tomorrow’s money as we would have spent fighting a major war or new Great Depression. That will have no small consequences if tomorrow we actually have to fight one.

How did the world’s oldest continuously constituted republic lose control of so fundamental a responsibility as its own budget? The answer is, as with most governmental policy disasters in a democracy, one innocuous step at a time. While politicians, economists, and many others pursued their self-interests, the national interest largely got lost in the shuffle.

Over the last sixty years, five trends have increasingly affected government fiscal policy. First, a powerful but fundamentally flawed concept in the discipline of economics has completely changed the way both economists and politicians view the national economy and their responsibilities toward it. Second, the responsibilities of government in general and the federal government in particular, as viewed by the public, have greatly increased. Third, a shift in power from the Executive to Congress has balkanized the budget process by sharply limiting the influence of the one politician in Washington whose constituency is national in scope, the President. Fourth, the decay of party discipline and the seniority system within Congress itself has further balkanized the budget process, dividing it among innumerable committees and subcommittees. This has made logrolling (you vote for my program and I’ll vote for yours) the order of the day on Capitol Hill. Finally, the political-action-committee system of financing congressional elections has given greatly increased influence to spending constituencies (often called special interests, especially when they are funding someone else’s campaign) while sharply reducing that of the electorate as a whole, which picks up the tab.

 

The result is a budget system that has become ever more heavily biased toward spending. As a consequence, the national debt has been