By Ryan S. ’22
One week ago, the Senate passed a bill to raise the debt ceiling to cover the government’s expenses through December of this year. Although the Senate was able to avert a potentially catastrophic government shutdown, this debt ceiling “extension” to December did little to actually address the issue of ongoing federal finances. The larger problem is the nature of government debt itself, as it has been rapidly increasing since the start of the 21st century. The United States’ national debt is currently nearing $29 trillion, a blistering amount, even for one of the world’s foremost economies.
Federal spending in the United States is a split power between the President and Congress. Although the President can submit budget requests, Congress is ultimately able to set tax rates and determine national spending. The integral issue lies in there often being more money in mandated government spending than in the amount of taxes raised, which requires some expenses to be “borrowed,” hence the reason there is debt. In most governments around the world, these extra expenses that are being borrowed are implicitly approved, however in the United States, Congress must pass a bill to increase the debt limit. There often is unnecessary drama surrounding the debt limit, as is the case with the current polarization of American politics. However, it is inevitable that an increase in the debt ceiling will always be passed, as otherwise there would be a devastating government shutdown.
The history of the United States national debt is quite interesting, being that in the 18th and 19th centuries there was never a large national debt, with many years having a budget surplus. The start of the United States’ modern encounters with outsize debt was after World War I, when debt increased to $25 billion. Throughout the 1920s, conservative lawmakers decreased national spending and brought debt back to $15 billion by 1930. In response to the Great Depression, President Roosevelt decreased tax revenue and spent immense amounts on new social programs. Combined with the mobilization efforts for World War II, the national debt reached an unprecedented $250 billion or 112% of the GDP in 1945. Throughout the latter half of the 20th century, national debt in relation to the GDP steadily decreased, reaching 24% of the GDP in 1974. President Clinton notably was able to attain budget surpluses by the end of his second term by increasing taxes and decreasing military spending, which decreased the national debt to 34% of the GDP.
Ever since the turn of the century, the debt has skyrocketed, with military spending increasing exponentially after September 11, 2001. Even two decades later, the US continues to spend exorbitant sums of money on defense. Since 2020, the deficit has swelled even more with three rounds of stimulus checks from Washington, as we arrive at our current dilemma of being heavily in debt in the age of a pandemic.
The recent deficit expansion during the pandemic has given rise to a debate about the harm of the national debt. The prevailing sentiment from economists in the discussion of the national debt at the current moment is that it is often blown out of proportion. Many claim that the United States is still in a good position considering the incredibly low interest rates and generally positive credit outlook. In fact, there is a large crowd that asserts the government ought to be spending more, including former Secretary of Labor Robert Reich who said, “When you have this much unemployment and this much underutilized capacity, this is the time that the government has to be the spender of last resort (…) If you don’t keep spending, the economy is going to continue to sputter.” There has also been vast pushback on the recent growth of the national deficit, with CEO of Quill Intelligence Danielle Martini Booth arguing, “If we are going to take our debt from 25 to 50 trillion dollars, that is when US sovereignty begins to become at risk. At some point you start to have real discussions about the sanctity of the US Dollar Reserve currency status.”
The increase in the national debt ultimately should not worry American citizens, as the unprecedented times of the pandemic require increased federal spending. There have been instances similar to this throughout American history, such as after World War II or during the Great Depression, and our economy and debt have recovered. Furthermore, the nature of debt itself is not as harmful as many think, with much of the debt being owed to American citizens because of bonds. The United States will not have a recession in the foreseeable future, but the increasing rate of debt observed recently is certainly unsustainable.