BY GAREN YEGPARIAN
Now that the House of Representatives’ shenanigans over the U.S. government’s debt ceiling increase are a “distant” two week memory, the “Tea Party downgrade” has hit the United States’ credit rating, and the stock market is hollering its disapproval, let’s take a very brief look at reality.
Please see the accompanying table which lists the U.S. gross domestic product (GDP), debt, and government expenditures from the eighteenth century to date. Two notes regarding the expenditures: 1- the annual expenditures were unavailable in my source prior to 1901; and 2- the figures prior to 1933 are based on the “administrative” vs. “unified” budget concept, meaning that special funds, such as social security, are not included.
Much ado was made about the debt. As a “corollary” all kinds of noise arose over cutting expenditures. Analogously, many have latched on to the hangman’s noose known as “the balanced budget” and are eager to put the country’s neck in it.
But look at the debt in terms of the country’s GDP, a measure of the size of the economy. You might be shocked, in light of all the fireworks over its size, that it is far from the largest it has been (see the WWII) years. Remember to look at the percentages, not just dollars of the day. And, the war era is a very apt period to compare, since the U.S. has been mired in two wars for almost a decade, a far longer period than WWII. So we should expect the debt to be high.
Similarly, the government’s expenditures would be expected to increase in times of war, and they have. But also, there has been the need to repair the damage done to the economy by the reckless bankers, so that has added to the government’s costs. Despite both these factors, government expenditures as a percentage of GDP are not off the historical scale.
Finally, as you can see in the table, even the government’s annual deficits are not out of line with historical precedents given the wars and financial implosion.
So why all the fuss? People are scared, worried by the joblessness prevalent in the country. They are also being riled up by a bunch of know nothings, reminiscent of the mid-1800s movement, that today goes under the banner of the “Tea Party”. These people seem to ignore all analysis and recommendations by those who study economies. They are blinded by a few basic, ill-conceived, notions that sound very good at first blush. So, it’s easy to get citizens to subscribe to these simplifications.
The result is chaos, damage to the country’s economy, and even members of our community being carried along in the wave of ignorance. This is particularly frightening because it is a type of mob mentality. Remember, again, that it is the possibility of whipping up mobs that enabled the Turkish leadership, over the centuries, to deprive Armenians of land and liberty. How dare we subscribe to such mentalities?