Federal debt now exceeds 70 percent of the nation’s annual GDP and stands at a higher percentage than at any time since right after World War II. At its current trajectory, federal debt will consume 77 percent of GDP a decade from now. This will reduce national economic output and income and ensure a fiscal crisis in dealing with future entitlements and their outlays.
By Andrew Thomas | July 11, 2013
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For most of its existence, the Republican Party has championed rigorous fiscal conservatism. Balanced budgets, aversion to federal debt, “pay-as-you-go” government: These were the mainstays of Republican governance at both the federal and state level for over a century.
Republican leaders who became heroes of their party made fiscal responsibility a hallmark of good government. None made his mark with such accomplishments more than President Calvin Coolidge. His administration presided over the roaring 1920s, so named in part because of the great economic growth that defined the period. Under his leadership, gross domestic product soared as government spending as a percentage of GDP fell. Amity Shlaes, author of an excellent biography of Coolidge, summed up his accomplishments:
The 30th president cut the top income-tax rate to 25% (lower than the 28% of the historic Reagan cut of 1986). Coolidge reduced the national debt and balanced the budget. When he departed the White House for his home in Northampton, Mass., he left a federal budget smaller than the one he found.
Though he did not reduce the deficit or cut the budget, President Ronald Reagan honored Coolidge and his achievements by having a portrait of the New Englander dusted off and returned to a place of prominence, a space near the portraits of Lincoln and Jefferson in the Cabinet Room.
Now, it appears the spirit of Coolidge is awakening and gaining new followers in Washington. Conservatives who stand for fiscal restraint in theory and rhetoric now are backing it up with tough, actual demands for discipline in government spending. New analysis by the Congressional Budget Office (CBO) has strengthened their case.
For a nation struggling to pay its bills, this development could not have come too soon. Federal debt now exceeds 70 percent of the nation’s annual GDP and stands at a higher percentage than at any time since right after World War II. At its current trajectory, federal debt will consume 77 percent of GDP a decade from now. This will reduce national economic output and income and ensure a fiscal crisis in dealing with future entitlements and their outlays.
Recently, in recognition of these baleful trends, two influential, right-leaning organizations in Washington laid down stringent markers for future federal budgeting. The Club for Growth and Heritage Action are urging lawmakers to come up with a balanced budget plan before agreeing to an increase in the federal debt ceiling. They argue that creating a path to a balanced budget within 10 years should be a Republican sine qua non for reaching a deal for further debt increases with President Obama and his administration. Indeed, on May 19, the nation reached its debt ceiling of $16.4 trillion.
New analysis by the Congressional Budget Office bolsters this renewed insistence on fiscal restraint. On February 5, the Congressional Budget Office released a report titled, “Macroeconomic Effects of Alternative Budget Paths.” The dull title was somewhat misleading, for the report shared important insights about different approaches to budgeting and their economic effects.
The report assessed three broad budgeting strategies and their impact on economic productivity over a ten-year period. These were a $2 trillion increase in primary deficits, a $2 trillion decrease in primary deficits, and a $4 trillion decrease in primary deficits. The CBO estimated that decreases in federal deficits would have a short-term negative effect on GDP for the first two years, but would usher in an economic boom afterwards. The short-term effects were temporary, and would yield to a major economic upswing thereafter.
The lessons of this most recent analysis and the longer sweep of American history are plain. Congress and the nation would do well to heed the urgings of those advocating a return to Republican roots on fiscal policy. As public concern grows over the federal deficit, and as conservatives look for ways to reinvigorate their party, they should look no farther than the proven success – economic, political, and national – of the Coolidge years. Conservative groups and Tea Party activists who counsel reining in excess public spending are simply being true to what has worked for a very long time, as proven by those years of plenty. Long-term economic growth comes from cutting, not growing, the deficit.
Andrew Thomas is a graduate of the University of Missouri and Harvard Law School. Twice elected as Maricopa County Attorney, the district attorney for greater Phoenix, Arizona, Thomas served a county of four million residents and ran one of the largest prosecutor’s offices in the nation. He established a national reputation for fighting violent crime, identity theft, drug abuse and illegal immigration. He is the author of four books, including The People v. Harvard Law: How America’s Oldest Law School Turned Its Back on Free Speech. Mr. Thomas is also a contributor to SFPPR News & Analysis.