St. Ronnie's Debts

I hope you have been enjoying the Reality Check series on our deficits and debts over the last few weeks.  I know it is a really dry and somewhat esoteric subject, but I think it’s important to understand the issue so you don’t get bamboozled by the politicians throwing around these huge numbers that make the problem seem worse than it is.  And one of the reasons I chose this subject to begin with was because it was a big issue in the first Presidential election that I was eligible to vote in.  At the risk of dating myself, that was the 1980 race between Reagan and Carter. Obviously, there is usually more than one issue that determines the outcome of a campaign, but Reagan spent a lot of time decrying Carter for the increase in debt under his watch – in 1980 the annual budget deficit had reached nearly $74 billion dollars, which was only about 2.6% of GDP, up from nearly $41 billion in 1979. Of course, the economy was in recession at the time, so an increase in the deficit was to be expected. But Reagan made inroads with this argument – in fact, he said this in his first inaugural speech in early 1981:

“For decades, we have piled deficit upon deficit, mortgaging our future and our children’s future for the temporary convenience of the present.”

The reality was that our debt-to-GDP ratio at that time was around 31%, which was near the historic lows in the post World War II era.  Our debt was nowhere near being a drag on our future at those levels. In fact, 1982, was the last time our debt-to-GDP ratio was as low as 31% and by the time Reagan’s two terms were up that number had risen to nearly 56%, an 80% increase. And, under Reagan the annual deficit only got close to being as low as the 2.6% in 1979 and that was at the end of his term in 1989 when it came down to just under 2.7% from a high of over 5.7% in 1983. By his own standards, Reagan did more to “mortgage our future” than anyone since the outbreak of World War II.

Now, I never voted for Reagan, but I learned a lesson from following that campaign – how politicians use the “story” or our debts as a cover for other priorities, most of which will not have a positive effect on that debt. And if you want to read the inside story of the implementation of those Reagan policies and the lack of concern about our debt, I suggest you read David Stockman’s account of his term as Reagan’s budget czar, The Triumph of Politics. There are a lot of positive myths about the Reagan era that are false; and, to some degree, there are lots of negative myths about the Carter Presidency that are false as well. But the idea that Ronald Reagan was fiscally responsible is one myth that should be shattered – he added more to the national debt than anyone from World War II until the financial crisis of 2008. We shouldn’t forget that.