Where Debt Is Due

From Glenn Beck to Walter Russell Mead to President Obama, and at all points in between, the darnedest people agree that President Bush increased the national debt.  But is this true?  Does it even make sense?

The Democratic narrative is that Bush increased the national debt, and that was bad.  Of course, Obama increased the national debt much more than Bush did, with additional increases stretching off indefinitely into the future, but this is somehow justified by Bush's supposed (relatively small) increases.  Not only that, but Obama insists that he inherited the housing crash from Bush.

Chronologically, yes, it is true -- from January 20, 2001 to January 20, 2009, the national debt increased, and during that time, Bush was president.  But laws, policies, and budgets are passed by Congress and signed by the president.  As long as a law is in effect, the costs of that law or policy continue to accumulate, regardless of who becomes president in the meantime.

Historically, the United States has sat atop the economic world since at least as early as WWI.  Then WWII temporarily left us with a high debt level but a very strong economy, and we were able to quickly expand the economy and pay off the debt.  Now the "Comeback America Initiative" lists the United States as 28th among 34 developed countries in a "country's fiscal responsibility and sustainability" -- one place below Italy and one above Hungary, and well below China (5), Chile (7), Brazil (10), and India (12).  So whence cometh this troublesome debt that grew from $1 trillion in 1965 at the start of the War on Poverty to over $14 trillion today? 

The current national debt increased in three broad increments marked by LBJ's Great Society entitlement programs: the War on Poverty (1965-1995), the dot-com bubble and its crash (1996-2000), and the housing bubble entitlement program crash in 2008.  These dates are easily identifiable by visual inspection as major turning points on a long-term DOW graph, except the housing bubble developed slowly and the effects were largely lost in the clutter until the abrupt crash in 2008.

Moreover, the entitlement programs were hotly disputed at the time as being counterproductive and too costly, particularly by Daniel Patrick Moynihan in the case of the War on Poverty.  Chairman Greenspan made his famous "irrational exuberance" comment concerning the financial danger of the dot-com bubble four solid years and trillions of dollars before the NASDAQ cracked prior to Clinton leaving office.  Less well-known is that Greenspan graphically warned against the housing bubble three years before the 2008 crash.  Since every major economic downturn after WWII has followed immediately after major Democratic Party entitlement programs (poverty, housing) or Democratic mismanagement of the economy (dot-com bubble), the whole concept of business cycles is brought into question.

The national debt was about $1 trillion at the start of the War on Poverty, and it stayed fairly constant until President Reagan took office.  In fact, the entire economy and the Dow Jones were in a state of stagnation punctuated by three recessions from 1965 to 1982.  The War on Poverty cost $6.6 trillion over a thirty-year period, an average of $220 billion per year.  LBJ not only took $220 billion out of the economy each year for the War on Poverty, but he also increased taxes and regulations that further wasted investment capital.  The result was seventeen years of economic stagnation ending in the Carter Catastrophe. 

Reagan's efforts to reform the economy had spectacular results, even as the cost of the War on Poverty pulled at the economy like an anchor.  Reagan's tax and regulation reduction reforms created the most dynamic economic growth in history.  Democrats' worst rap on Reagan is that he increased the national debt, but do the math.  The cost of LBJ's War on Poverty during the Reagan years was almost exactly the same as the increase in the national debt during those same years.  At the end of the War on Poverty in 1995, the entire national debt, $6 trillion, had been created by LBJ and the Democrats and the laws that they had passed back in 1965.  Ironically, irate taxpayers and overburdened state governors who could not meet the costs of federal mandates for Great Society programs forced Democratic President Clinton to end the War on Poverty.  Clinton changed welfare to workfare -- the same thing Reagan had proposed years, and trillions of dollars, earlier.

If the Democrats' War on Poverty was the result of economic and social irresponsibility, the dot-com bubble was the result of President Clinton's economic incompetence.  Chairman Greenspan's warning about "irrational exuberance" in the markets occurred when the Dow was at 6,000 in 1996, but nothing was done until January 2000, when the Dow was at 12,000.  At that point, the NASDAQ crashed, soon followed by the Dow.  The NASDAQ lost $2.5 trillion before Clinton left office, and a recession was assured even if the main effects of the recession trailed out for a couple of years, as those recessionary effects always do. 

Every economic bubble soon crashes.  The dot-com bubble was the third-largest economic bubble in history, following the Roaring Twenties before the Great Depression and the Japanese bubble and subsequent crash in 1991.  We should have been trying to limit the coming economic damage rather than bragging about the ephemeral and two-bit "Clinton surplus," which, in any event, turned into a $3-trillion addition to the national debt.

The housing bubble, similar to the War on Poverty, was wholly the creation of Democrats.  President Carter created the Community Reinvestment Act in 1977 with little ill effect.  The CRA required that lending institutions had to provide loans to qualified borrowers, with an emphasis on qualified.  President Clinton adopted the FRB Boston "Closing the Gap" policy, which officially required lending institutions to give mortgage loans to borrowers who were patently unqualified and unable to repay them, in 1998.

This was government policy when Bush became president, but Bush soon realized that the whole mortgage structure was a house of cards.  From 2003 on, Bush, Senators McCain and Hagel, and all the Republicans on the Senate Banking Committee tried to reform Fannie Mae and Freddie Mac, only to be voted down in the Banking Committee by party-line Democrats.  The rest is history: a huge Dow collapse and an even larger worldwide markets collapse, complete with destruction of the nation's wealth and citizens' retirement accounts.

Any argument that George W. Bush raised the national debt runs afoul of the logical fallacy cum hoc, ergo propter hoc.  That the debt increased during Bush's presidency does not mean that the debt increased because of Bush's presidency.  Truly, the total national debt of $14 trillion is the result of Democratic Party laws and policies.  Trying to blame it on Republicans is dishonest.

James Long is a professional engineer, manager, and quality control inspector.