It’s Not How Much You Borrow, It’s How You Spend the Money

In barely one year, the America’s national debt has expanded by over four trillion dollars. It is now more than America’s GDP. But what is this debt buying Americans?

Debt hawks typically don’t differentiate between good debt and bad debt, but there’s a difference. The last time the national debt exceeded GDP was in the aftermath of World War Two. The return on that investment was not only a planet liberated from fascism and protected from communist expansion, but an industrial and technological supremacy that gave rise to an American economic boom. And with the post-war boom came deleveraging.

From a peak of 118 percent in 1946, the national debt was steadily whittled down. By 1950 it dropped to 86 percent. By 1955 it was down to 64 percent, by 1960, 53 percent. It dropped below 40 percent in 1966 and hit a low of 31 percent three times, in 1974, 1979, and 1981. But then what happened?

During the Reagan presidency, the decision was made to spend the Soviets into the ground on military technology, without seriously confronting or reducing the many new taxpayer funded entitlements ushered in by the New Deal and the Great Society. One might argue this first debt binge was justified. By 1990, the national debt was back up to 54 percent, but the Soviet Union was no more, and the United States became the lone superpower nation.

For a time, there was a so-called peace dividend. Ten years later, in 2000, national […] Read More