History of Us Debt and Deficit

Macroeconomics

Extra Credit Paper

August 3, 2011

History of the U.S. Debt and Deficit

There is no debate when it comes to the world's wealthiest and economically most powerful country. The United States, despite its rough patches, has the largest influence on the world's economy since the beginning. With great power and fame comes great responsibility. Managing the country's finances is no easy task. Some major factors that influence our country's expenses and investing are Presidents, deficit spending, unemployment and times of war. This paper will take a detailed look into these economic factors.

Since the inception of the United States, our country has always had a national debt. The primary cause of this debt over the years has been a result of America's involvement in multiple wars. Not all necessary, but The United States had to pay for whatever battle we embarked in somehow. These wars started off relatively cheap to fund. However, the amount has severely changed over the years.

For instance, during the American Revolutionary War, the Public Debt of the United States amounted to over seventy-five million dollars by 1971. Over the next sixty years, the United States was able to diminish the amount of debt to roughly zero. As would have it, that wouldn't last for long. Thirty years later, The American Civil War was upon us. By the end of this particular war, the national debt had jumped to over two billion dollars in only a few years.

As the years went on, the debt again grew with the countries involvement in World War I. In fact, the public debt grew to over twenty-two billion dollars by the turn of the century. World War I was responsible for growing the debt twenty billion dollars in as many years. Looking back, this is a rather small number now but at the time it was ten times larger than the nation's debt had ever reached.

With the nation preparing for involvement in what would be known as World War II, the national debt was about to sky-rocket. Again, it only took roughly twenty years for the national debt to increase from twenty two billion to a staggering two hundred and sixty billion dollars by 1945. A jump like this had never been seen before.

Looking at the history of U.S. wars, one thing is constant. As the years, decades, and centuries turn, the price for financing involvement in war has inflated drastically. For example, our efforts in Afghanistan cost the United States two billion dollars a week. The American Revolutionary War in its entirety cost half as much as one week fighting in Afghanistan currently cost the United States. For the most part, history shows that war is expensive and grows the national debt. But, there was one particular time in our history where having our boy's on the battlefield positively influenced our economy in a way we have never seen before.

The year was 1941 and our country was preparing to enter the largest fight in our history. With Germany in full force and Japan looming on the doorstep, America was forced to draft all men able to fight. This emptied our workforce immediately. In came a new breed of workers to fill the economic void left by the depleting work force.

If women didn't step up to the rescue America would have had no money or supplies to fight the war. This was the first time in our history where there was a larger need for jobs then employees could fill. Both members of most households were working or fighting fulltime. This historical change in employment avoided the second coming of The Great Depression and changed the nation's employment path forever.

As stated earlier, war is not the only major factor affecting the national debt of The United States. Since the beginning, the most influential person in the world has been the President of the United States. Along with the cabinet He surrounds himself with; the financial decisions made by the President are directly evident in the national debt. All have been forced to make one major choice, increase or decrease the government spending. Some have made better decisions than others.

As stated earlier, our nation's first true significant national debt derived from the Revolutionary war. Hamilton stated that it was a must to spend/borrow whatever amount to keep the nation healthy and successful. On the other side, Jefferson stated we should eliminate as much debt as possible without affecting the nation in a negative way. In the end, Hamilton's position won over and the debt grew. This is said to be the first sighting of differing party opinions and the birth of conservative versus' liberal points of view.

It wasn't until Jackson where the first sign of "balancing the budget" philosophy was put into effect. Jackson was against borrowing, banking, or any kind of national debt. Before leaving office, Jackson successfully lowered the debt to a staggering eighteen thousand dollars. Since his term in office, there hasn't been another significant success in drastically lowering the national debt.

Jumping ahead several years, the national debt made no major changes until the large increase caused by World War II. The Presidents following the end of the war were faced with a great task; control government spending by implementing a "balanced budget" and work to eliminate the "War Debt." Under President Truman, government spending successfully came down four of the seven years he was in office.

Following President Truman, Eisenhower and Kennedy were only able to reduce spending and the debt three of eleven years under their combined terms. The major cause of resistance to their plans was having a different party in Congress opposite of their party. This was the beginning stages of problems caused by differing parties in Congress and the Presidency that we still face today. Regardless, several patterns over the past seventy years show a difference in spending within the two parties.

Looking at the two party Presidential spending habits separately since WWII, the numbers tell a fascinating story. Republican Presidents popularly thought of as "conservatives", have raised the national debt at an unbelievable nine percent increase per year in office. On the flip side, "liberal" or Democratic Presidents have only raised the debt by three percent per year. During this most recent period, Republicans have out borrowed Democrats by a three to one ratio. The most influential