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Government : How did we get here?
Posted by: McQ on Monday, January 28, 2008

Victor David Hanson takes a look at the policies and practices which have made us the largest debtor nation in the world and wonders if anything can be done to reverse that.

At the end, he offers some suggestions:
(1) At this late date, Republicans shouldn't vote for any candidate who promises another tax cut without first offering a matching slash in expenditures. And Democrats should reject any candidate who promises another multibillion-dollar entitlement without detailing how the additional revenue is to be raised.
Of course, understanding that Hanson is attempting to ask for something positive from Democrats (how are you going to pay for that?), I prefer he address cuts in government spending with a group which has been whining for the last 7 years about balanced budgets and surpluses. I'd suggest the argument should be nothing new be considered until spending is cut to the point that we are busily engaged in paying the debt down to some agreed upon target.

But he and I know that Democrats have no intention of ever doing that, and, unfortunately, probably won't even consider his very limited suggestion.
(2) Instead of demanding new billion-dollar programs for health care and education, we should take more responsibility for our own welfare.

Americans need to readjust their budget priorities. One might be able to believe that a $200 dollar-a-month private catastrophic health plan is out of the reach of most Americans — if we also heard that sales of video games, cell phones and plasma televisions have crashed.
If you want more of a type of behavior, you incentivize it. If you want less of that sort of behavior, you penalize it. The programs and promises being thrown out there by both sides incentivize dependency. Right now there is no incentive to take responsibility for our own welfare and all sorts of political incentives to take less responsibility. If it hasn't become clear, the candidates on both sides, to a lesser or greater degree, have bought into the premise that government's job is to guarantee benefits and outcomes instead of providing an atmosphere in which everyone has an equal chance under the law to succeed.
(3) We need to ignore the alarmist hysteria, calm down and appreciate that life is better than at any time in the last 5,000 years of civilization. People are living longer; we're healthier; and millions of Americans have the opportunities to travel, communicate and avoid physical drudgery that were once reserved only for a tiny aristocracy. There is plenty of excess in modern American life that can be shed without real hardship.
We also need to figure out how we got to the point we're now enjoying and how much that had to do with individuals and the private sector vs. this pernicious myth that it is because of government. Each had a role, but the vast majority of our real progress had little to do directly with government. Its role of providing a fair legal atmosphere for all participants is both important and key. But that's about it. It now borders on a hindrance with things like the 2nd highest corporate tax in the world while looking to expand its role in the economy dramatically if Democrats win the election.
(4) Finally, we must view our present economic challenges in a larger philosophical and ethical framework — and redefine success as being able to pay off what we owe, and spend only what we earn.
Unfortunately, other than lip-service, this philosophy has been dead on arrival each time it has entered the beltway of Washington DC with a new administration. And neither side can honestly claim otherwise. Until that philosophy is resuscitated and reinstated in full with no exceptions, none of Hanson's other points have any traction and certainly little likelihood of being accomplished.
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Previous Comments to this Post 

Gee will wonders never cease, a Victor Davis Hanson column I actually agree with for the most part.
Written By: Scott Erb
If we can keep the economy going, and stop increasing spending faster than revenues, then the problem will solve itself. Of course, if I were rich and handsome and famous and single and young, women would be all over me.

I think the odds on me are better.
Written By: MarkD
URL: http://
Dr. Hanson seems to think being ’the largest debtor nation’ is an insult. I don’t. We have the largest economy so why shouldn’t we have correspondingly high debt as long as it is proportionate? Many people seem to think a country is like a family or a business, but it’s not. The government uses Treasury debt to regulate the money supply. It invests in its own debt for various purposes such as Social Security. In fact, 40% of our government debt is owed to itself. If we had a budget surplus the government would have to retire debt, eventually extinguishing one of the world’s largest and most secure securities — U.S. Treasury bonds.

But even if you view our total debt without considering that 40% is owed to itself, we have had much higher debt as a percentage of GDP in the past. Today, our government debt is about 66% of GDP at $9 trillion. For more, see
Our debt compares favorably with many other countries and is much lower that the debt of Japan for example. And, it’s one par with Germany, Canada and France.

Our current budget deficit is about 1.2% of GDP, which is slightly more than half of the 40-year average budget deficit of 2.2% of GDP. I think the past 40 years have been very good economically so apparently budget deficits are not quite as odious as Dr. Hanson would think.

We know how well things have gone for many years with our current system. What we do not know is what it would be like in this utopia envisioned by Hanson.

Written By: Kurt Brouwer
Kurt, in WWII our debt soared over 100% of GDP, and we slowly paid it down to 30% by 1981. Since then its risen, as has private and corporate debt. We were the largest creditor nation for a long time, in 1985 we moved towards being a debtor nation, with much of that debt and many of our assets controlled by countries like China or Saudi Arabia. Our system has been transformed in the last twenty years to one of debt, an overvalued dollar, and structural weakness — we just were able to avoid confronting the reality due to first the initial rush of pumping the economy with increased borrowed funds (the 80s), then cheap oil followed by a stock market bubble, then finally the property bubble and increasing consumer debt. Now if we slow down, there’s no real impetus to get out of it, especially if we increase debt more and set up an even more difficult situation.

Structurally the US economy is not what it was, and thus the international economy is rebalancing, with the US ultimately in a much weaker position.
Written By: Scott Erb
If we were the largest creditor nation in 1985 and we are the largest debtor nation now, then I’ll take our economy now. GDP has doubled since 1985 in real terms. The annual budget deficit is lower as a percent of GDP.

Interest rates on Treasuries were 10-11% in 1985, but they are under 4% now. Unemployment was 7% then, but it’s 5% now. Throwing out terms such as stock market bubble, property bubble etc., means little or nothing. How — specifically — is our economy worse today than it was in 1985?

In my opinion, the economy today is infinitely stronger — and more dominant worldwide — than it was in 1985. I’m afraid I don’t see the factual evidence for the doom and gloom.
Written By: Kurt Brouwer
Kurt, I think you’re looking at a few statistics and interpreting them in a really superficial way. Look at the credit crisis, the high debt load, the inability to maintain consumer spending (which is over 2/3 of our economy), our loss of industry, and the overvalued dollar (finally starting to come to where it should be — unfortunately just before I go on a trip to Italy) — and of course read the Financial Times and Economist for details about the current crisis...and, well, you’re one of the few optimists out there.

If you click my blog address below and go down to January 23rd I have links to other blog entries of mine from 2006 to the present talking about what I see as structural problems in the economy (unfortunately you have to scroll down each link to the day’s entry — I’m not able to link to each day), though you’re probably not interested.

I guess we’ll see. And believe me, I hope you’re right and I’m wrong! If I’m right, then my children and myself will not enjoy as much prosperity as we do now, and I really hope I don’t have to give up the kind of lifestyle I’m used to. But all great powers rise and fall, and it looks like we’re on the downslide now on a number of fronts.
Written By: Scott Erb
Kurt, I think you’re looking at a few statistics and interpreting them in a really superficial way.
Isn’t this what you keep saying about Iraq?

But all great powers rise and fall, and it looks like we’re on the downslide now on a number of fronts.
And haven’t you been saying this since Q&O had that lovely aqua backdrop before Dale wrote .blog?
Written By: meagain
URL: http://

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