Aug 22, 2011

National Debt

The graph above shows Federal Debt as a percent of GDP. In good times our economy should be growing enough to gradually reduce the debt as a percent of GDP. During crisis such as fighting a war, overcoming a major disaster, and fighting depressions / major recessions, we can increase the debt.

We ran up major debt to fight and win World War II. We were doing a good job of reducing that debt as a percent of GDP. We even reduced it during the Vietnam War and the War on Poverty. During the Reagan and Bush 1 administration a major build up of defense to combat Communism plus tax cuts served to increase our debt.

We did a good job of reducing our debt during the Clinton years. But we have dramatically increased our debt during Bush II and the Obama administration, partly as a cost of our two wars plus tax cuts plus fighting major recession with stimulus.

Most other countries are going through the same debt problems. Most advanced economies created good social security and health care systems. As our population ages and technology has created great new but costly medical procedures and drugs our costs have greatly increased.

We must get our costs more in line with revenues, probably with a combination of program cuts and tax increases. But we should get our economy functioning properly before we embark on a program of major cuts.