Debt to GDP

With all the kerfuffle over raising the debt ceiling, a lot of the blustering is that we’re approaching a 90% debt to GDP ratio.  “We’re going broke!”  “We’ll be the next Greece!” are the cries.  Neither statement is true, but they make for good bluster to pursue a hidden political agenda.  The Greece analogy is particularly bad.  Perhaps a better analogy would be the dept to GDP ratio at the end of WWII.

In 1946 the debt to GDP ratio was 121%.  Understandable as we’d just spend years fighting WWII.  So what did the government do?  First FDR signed the  Servicemen’s Readjustment Act of 1944, known as the GI Bill of Rights.  This allowed returning servicemen and women to attend college or trade schools,  loan guaranty for homes, farms or businesses, and unemployment pay.  Next Truman signed off on the Marshall Plan, designed to rebuild war-devastated Europe, and return them to prosperity.  Eisenhower instituted the largest infrastructure program ever with the interstate highway program followed by the Advanced Research Projects Agency, ARPA  (later renamed Defense Advanced Research Projects Agency).

Like any investment, all of these programs cost money.  Lots and lots of money, at a time when we had a huge debt to GDP ratio.  But the payoff was huge.  Millions of Americans returned from service looking for work.  The GI Bill allowed Americans to be trained for good paying jobs.  Coupled with the home loan guarantee these servicemen could afford homes in record numbers, which put a lot of tradesmen to work.  The interstate highway system not only put people to work, it enabled construction of the suburbs for all those new homes being bought by returning GIs.  Much of the loan money from the Marshall Plan came back to the U.S.  to industries that helped rebuild and modernize Europe.  ARPA employed our newly educated scientists and engineers, not only directly, but indirectly through grants to industry and universities.  The resulting technological explosion speaks for itself.

In short, we cut the debt to GDP ratio not by cutting spending, but by investing in America.   The investment allowed the GDP to grow faster than the debt, and when the economy got back on track, then and only then were small deficits put back into place.

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23 Comments

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23 responses to “Debt to GDP

  1. dog hussein dog

    Beautiful and very informative essay.

    Thank you, dnd. I wish you were in Congress.

  2. TempeBev

    D- ditto Dog on your essay. I seem to recall these very same ideas perhaps when O first took office as being suggested for economic recovery. They were great ideas for FDR and they would be wonderful now too.

    Since they are such great ideas, we know they’ll never become reality since it involves more spending and continuing to support the wealthy instead of the middle class.

    I like the idea of you in Congress – thinking about a new career?

    • dnd

      Dog & Bev,
      I don’t suffer fools gladly, so Congress is not well suited to me. Plus I don’t want a job where you have to wear a suit and tie every day 😉
      But thanks for the kind thoughts!

  3. Breaking News Alert
    The New York Times
    Friday, June 24, 2011 — 9:53 PM EDT
    —–

    Gay Marriage Gains Critical Vote in New York State Senate; Passage Appears Assured

    State Senator Stephen M. Saland, who had been publicly undecided, said Friday that he would vote for gay marriage, giving the bill the support of 32 state senators, enough for passage.

  4. Dooty

    queers get to be as miserable as the squares. Just joking! congratulations.

  5. It’s official, just passed the senate!

  6. TempeBev

    Hooray for NY!

    • dnd

      Michelle Bachmann on FTN this morning. Didn’t answer the questions. I think she’s the new George W. Bush. Whenever she doesn’t say something stupid, people say she had a “commanding performance.” Than and she thinks she’s infallible as God is guiding her every move.

  7. dog hussein dog

    Popped over to see if you had Ed Quillen link up.

    You would have to pay me, and well, to watch a Sunday “public affairs” show. They’re kabuki with less beautiful costuming.

  8. dog hussein dog

    Except GPS!

    But that involves watching or linking to CNN.

    The horror, the horror …

    • dnd

      Sra Dog,
      I like ol’ Bob Schieffer. He’s the easily the best of the Sunday show show cabal. Of course that’s a pretty low bar to clear.

  9. TempeBev

    Interesting article in Sunday’s paper about why Hoover Dam-size projects can’t put US back to work.

    http://www.bloomberg.com/news/2011-06-14/forget-about-hoover-dam-and-other-job-growth-lessons-ron-klain.html

    • dnd

      Bev,
      Not so sure I agree with the Ron Klain piece who Hoover Dam size projects can’t put us back to work. Sure there were only about 5k workers on the project, but it required the construction of Boulder City, Nev. to house the workers. So that required construction workers to build the city, maintenance workers, retailers, etc., creating a multiplier effect. Plus there were more that a “few” of these projects. The idea proposed by Keynes was that when the government was the only entity that could spend, then that’s what should be done until the economy gets back on it’s feet, and then back off (contrary to the right’s propaganda that Keynesian economics equates to socialism).

      I also disagree with Klain that payroll tax cuts to employers gives an incentive to hire new workers. Demand gives employers an incentive to hire new workers. If there isn’t an increased demand for their products/services, employers won’t hire new workers period. Tax cuts just add to their bottom line.

      I do agree with him that long term projects, such as high speed rail, will add jobs. Those trains won’t run themselves!

  10. TempeBev

    My oldest son and family are in the path of a new wildfire that began today and is leading toward Los Alamos NM. Their house was saved 10 years ago in the Cerra Grande fire that hit Los Alamos. Just heard they had received voluntary evaluation orders. They’re packing things just in case they have to leave.

    Too many fires, too many floods, too many tornados. Mother Nature is not happy.

  11. Dooty

    Bob Schieffer is from Fort Worth. His brother was in the group that GWBush led when they owned the Texas Rangers Baseball Club. Bob is the better brother in my opinion.

  12. dog hussein dog

    Bev: keep us posted on the fire. Hope it’s under control soonest.

    Another Supreme Court decision on campaign finance today, same 5-4 coalition as for Citizens United. Anthony Kennedy was the swing vote.

    Why do I feel we are down the rabbithole of 1984-speak? From the NYTimes story by Adam Liptak:

    “…[T]he Supreme Court on Monday struck down an Arizona law that provided escalating matching funds to candidates who accept public financing.

    … The majority’s rationale was that the law violated the First Amendment rights of candidates who raise private money. Such candidates, the majority said, may be reluctant to spend money to speak if they know that it will give rise to counter-speech paid for by the government.

    …. It was the fifth ruling from the Roberts court cutting back on the government’s ability to regulate campaign finance.

    A theme than ran through some of those cases was present on Monday, too: the government, the majority said, has no business leveling the playing field where speech is involved.

    “ ‘Leveling the playing field,’ ” Chief Justice Roberts wrote, “can sound like a good thing. But in a democracy, campaigning for office is not a game.”

    ========
    recap: “Such candidates, the majority said, may be reluctant to spend money to speak if they know that it will give rise to counter-speech paid for by the government.”

    Now think how that applies to candidates likely to be funded by the Koch Brothers, or the Club for Growth, and how they are used to operating in the friendly zone of Faux News.

    Waiting to see what others make of the decision; maybe Liptak was cherry-picking, maybe not.

  13. dog hussein dog

    The Washington Post deplores the Supreme Court decision just as much as the Times did. (Of course, the SC also struck down a ban on selling violent video games to minors, and which decision do you think will get more attention and discussion this week?)

    The Washington Post story by Robert Barnes:
    http://www.washingtonpost.com/politics/supreme-court-strikes-arizona-system-of-matching-funds-to-publicly-financed-candidates/2011/06/26/AG92xenH_story.html?hpid=z1

    “The Supreme Court on Monday struck down part of Arizona’s public campaign finance law, the court’s latest decision that the right of political speech trumps government’s attempts to restrain the power of money in elections.

    The court rejected Arizona’s system of providing “matching funds” to candidates who face big-spending opponents or opposition groups. The system has been used in every statewide and legislative election since voters approved it in 1998, after a period in which the state told the court a “seamless interplay between fundraising and lawmaking cast a web of perceived corruption over the Arizona capitol.”

    …[Orwell-speak by John Roberts:] “The First Amendment embodies our choice as a nation that, when it comes to such speech, the guiding principle is freedom — the ‘unfettered interchange of ideas’ — not whatever the state may view as fair,” wrote Chief Justice John G. Roberts Jr.

    …New Justice Elena Kagan spoke for the objectors, reading her dissent from the bench for emphasis.

    “The First Amendment’s core purpose is to foster a healthy, vibrant political system full of robust discussion and debate,” Kagan said. “Nothing in Arizona’s anti-corruption statute, the Arizona Citizens Clean Elections Act, violates this constitutional protection.”

    Kagan directly answered Roberts’s assertion that “in a democracy, campaigning for office is not a game. It is a critically important form of speech.”

    She said Arizonans “deserve a government that represents them all. … Truly, democracy is not a game.”

    • dnd

      Dog,
      So we have “activist” judges legislating from the bench on the SCOTUS. Good thing President Bachmann said she won’t appoint anyone who’d do that 😉

  14. TempeBev

    d- didn’t think you would agree – that’s why I posted it for you.

    Los Alamos now has mandatory evacuation. Family going to Albuquerque with pets. Hope their house makes it again.

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