How bad is the National Debt
To gain some perspective let’s take a look back in time when two renowned economists disagreed on the best way to manage the economy.
Keynesian Economics vs. Monetarism: An Overview
Monetarist economics refers to Milton Friedman‘s direct criticism of the Keynesian economics theory formulated by John Maynard Keynes. Simply put, the difference between these theories is that monetarist economics involves the control of money in the economy, while Keynesian economics involves government expenditures. Monetarists believe in controlling the supply of money that flows into the economy while allowing the rest of the market to fix itself. In contrast, Keynesian economists believe that a troubled economy continues in a downward spiral unless an intervention drives consumers to buy more goods and services.
Both of these macroeconomic theories directly impact the way lawmakers create fiscal and monetary policies. If both types of economists were equated to motorists, monetarists would be most concerned with adding gasoline to their tanks, while Keynesians would be most concerned with keeping their motors running.
Regardless of their input, Congress has taken an approach that would enrage even Keynes. In simple terms, he advised that deficit spending was helpful during economic downturns but that the government should budget for surpluses during the good times. Regarding overall debt, he recommended keeping the ratio to GDP at under 75%.
So what have we done?
| END OF FISCAL YEAR | DEBT (IN BILLIONS, ROUNDED) | DEBT-TO-GDP RATIO | MAJOR EVENTS BY PRESIDENTIAL TERM |
| 1929 | $17 | 16% | Market crash |
| 1930 | $16 | 17% | Smoot-Hawley reduced trade |
| 1931 | $17 | 22% | Dust Bowl drought raged |
| 1932 | $20 | 34% | Hoover raised taxes |
| 1933 | $23 | 40% | New Deal increased GDP and debt |
| 1934 | $27 | 40% | |
| 1935 | $29 | 39% | Social Security |
| 1936 | $34 | 40% | Tax hikes renewed depression |
| 1937 | $36 | 39% | Third New Deal |
| 1938 | $37 | 42% | Dust Bowl ended |
| 1939 | $40 | 51% | Depression ended |
| 1940 | $43 | 49% | FDR increased spending and raised taxes |
| 1941 | $49 | 44% | U.S. entered WWII |
| 1942 | $72 | 48% | Defense tripled |
| 1943 | $137 | 70% | |
| 1944 | $201 | 91% | Bretton Woods |
| 1945 | $259 | 114% | WWII ended |
| 1946 | $269 | 119% | Truman’s 1st term budgets and recession |
| 1947 | $258 | 103% | Cold War |
| 1948 | $252 | 92% | Recession |
| 1949 | $253 | 93% | Recession |
| 1950 | $257 | 86% | Korean War boosted growth and debt |
| 1951 | $255 | 74% | |
| 1952 | $259 | 71% | |
| 1953 | $266 | 68% | Recession when war ended |
| 1954 | $271 | 69% | Eisenhower’s budgets and Recession |
| 1955 | $274 | 64% | |
| 1956 | $273 | 61% | |
| 1957 | $271 | 57% | Recession |
| 1958 | $276 | 58% | Eisenhower’s 2nd term and recession |
| 1959 | $285 | 55% | Fed raised rates |
| 1960 | $286 | 54% | Recession |
| 1961 | $289 | 52% | Bay of Pigs |
| 1962 | $298 | 50% | JFK budgets and Cuban missile crisis |
| 1963 | $306 | 48% | U.S. aids Vietnam, JFK killed |
| 1964 | $312 | 46% | LBJ’s budgets and war on poverty |
| 1965 | $317 | 43% | U.S. entered Vietnam War |
| 1966 | $320 | 40% | |
| 1967 | $326 | 40% | |
| 1968 | $348 | 39% | |
| 1969 | $354 | 36% | Nixon took office |
| 1970 | $371 | 35% | Recession |
| 1971 | $398 | 35% | Wage-price controls |
| 1972 | $427 | 34% | Stagflation |
| 1973 | $458 | 33% | Nixon ended gold standard and OPEC oil embargo |
| 1974 | $475 | 31% | Watergate and budget process created |
| 1975 | $533 | 32% | Vietnam War ended |
| 1976 | $620 | 33% | Stagflation |
| 1977 | $699 | 34% | Stagflation |
| 1978 | $772 | 33% | Carter budgets and recession |
| 1979 | $827 | 32% | |
| 1980 | $908 | 32% | Volcker raised fed rate to 20% |
| 1981 | $998 | 31% | Reagan tax cut |
| 1982 | $1,142 | 34% | Reagan increased spending |
| 1983 | $1,377 | 37% | Jobless rate 10.8% |
| 1984 | $1,572 | 38% | Increased defense spending |
| 1985 | $1,823 | 41% | |
| 1986 | $2,125 | 46% | Reagan lowered taxes |
| 1987 | $2,350 | 48% | Market crash |
| 1988 | $2,602 | 50% | Fed raised rates |
| 1989 | $2,857 | 51% | S&L Crisis |
| 1990 | $3,233 | 54% | First Iraq War |
| 1991 | $3,665 | 58% | Recession |
| 1992 | $4,065 | 61% | |
| 1993 | $4,411 | 63% | Omnibus Budget Act |
| 1994 | $4,693 | 64% | Clinton budgets |
| 1995 | $4,974 | 64% | |
| 1996 | $5,225 | 64% | Welfare reform |
| 1997 | $5,413 | 63% | |
| 1998 | $5,526 | 60% | LTCM crisis and recession |
| 1999 | $5,656 | 58% | Glass-Steagall repealed |
| 2000 | $5,674 | 55% | Budget surplus |
| 2001 | $5,807 | 55% | 9/11 attacks and EGTRRA |
| 2002 | $6,228 | 57% | War on Terror |
| 2003 | $6,783 | 59% | JGTRRA and Iraq War |
| 2004 | $7,379 | 60% | Iraq War |
| 2005 | $7,933 | 61% | Bankruptcy Act and Hurricane Katrina. |
| 2006 | $8,507 | 61% | Bernanke chaired Fed |
| 2007 | $9,008 | 62% | Bank crisis |
| 2008 | $10,025 | 68% | Bank bailout and QE |
| 2009 | $11,910 | 82% | Bailout cost $250B ARRA added $242B |
| 2010 | $13,562 | 90% | ARRA added $400B, payroll tax holiday ended, Obama Tax cuts, ACA, Simpson-Bowles |
| 2011 | $14,790 | 95% | Debt crisis, recession and tax cuts reduced revenue |
| 2012 | $16,066 | 99% | Fiscal cliff |
| 2013 | $16,738 | 99% | Sequester, government shutdown |
| 2014 | $17,824 | 101% | QE ended, debt ceiling crisis |
| 2015 | $18,151 | 100% | Oil prices fell |
| 2016 | $19,573 | 105% | Brexit |
| 2017 | $20,245 | 104% | Congress raised the debt ceiling |
| 2018 | $21,516 | 105% | Trump tax cuts |
| 2019 | $22,719 | 107% | Trade wars |
| 2020 | $27,748 | 129% | COVID-19 and 2020 recession |
| 2021 | $29,617 | 124% | COVID-19 and American Rescue Plan Act |
| 2022 | $30,824 | 123% | Inflation Reduction Act and student loan forgiveness |
As you can see the problem started in 1981 and we have not looked back.