Three Myths of the 2016 GOP Presidential Debates

Published in the Tampa Bay Times, Saturday, April 2, 2016.

   

Debunking U. S. Debt Myths

Edward Renner

The federal debt is too big compared with the size of the U.S. economy, and it’s getting worse. But there is a mythology surrounding the “why,” and it’s important to debunk it point by point to understand the real reason — that we’re going deeper and deeper into debt because we won’t tax ourselves to pay for the government we want, instead running up the debt year after year until it is actually larger than the entire economy. (This chart shows the debt as a percentage of the Gross Domestic Product — that is, as a percentage of the U.S. economy as well as federal revenue and spending.) Let’s dismiss three myths, one by one.

Source: Federal Reserve Bank of St. Louis, U. S. Office of Management and Budget

Notes: The annual budget deficit is the amount each year that federal spending exceeds federal revenue. This annual difference has been added to the cumulative federal debt each year from 1981 to 2016, plus the interest due on the borrowed money. These annual deficits account for the rapid growth of the federal debt over the last 35 years. A high level of debt is very dangerous in the absence of economic growth. The debt, combined with its carrying charges, goes up really fast when not covered by growth in the GDP — such as was the case during the Great Recession — even if revenue and spending remain constant, requiring more of the spending to be directed to debt carrying charges, leaving less for government programs. And when the debt exceeds 100 percent of the GDP, an accelerating downward spiral can spin out of control, hurting the economy, killing jobs and cutting the GDP, thus intensifying the problem by increasing the amount by which the debt exceeds the capacity to pay. This is what happened to Greece.

Myth No. 1. The Federal Government has grown too big and too expensive.

The size of the Federal Government, measured relative to the US economy, has remained constant at about 20% of the Gross Domestic Product (GDP) since the Reagan administration in 1981. The factors associated with an increase in the GDP over these years – a population growth of 90 million people, economic globalization, new technologies and digital communication – are also associated with an increase in Federal Spending – a modern army, roads, airports, higher levels of education, international agreements, and structures for world travel, trade, finance and mass communication. Failure to have kept pace with changing times would have been a failure in the roles and responsibilities of government itself.

Myth No. 2. Taxes cuts will be good for the economy and create jobs.

Prior to 1981, taxes were always increased to pay for government expenses. To cover the cost of World War II and to reduce the nation’s war debt, the marginal tax rate was over 90% on income above $400,000 from 1951 through 1963, a period of working class prosperity. At the start of the Reagan period, the national debt had been reduced to its previous highs of around 30% of GDP after the Civil War and WWI. The tax cuts of the Reagan period did not stimulate economic growth to replace the loss of tax revenue as promised. Instead, the tax cuts resulted in spending exceeding revenue each year, thus creating annual budget deficits that increased the cumulative national debt – year by year -- to over 60% of the GDP. The end of the cold war (1991) eventually provided a peace dividend in which revenue exceeded expenses, creating an annual surplus that allowed the total national debt to be reduced to less than 60% of GDP by the year 2000. However, rather than continue to use this annual budget surplus to reduce the national debt, additional tax cuts under President George W. Bush, combined with the added expense of the war on terror, increased the national debt to over 80% of the GDP. Then, the financial crises of 2008 further reduced government revenue and required an economic stimulus package that increased the national debit to over 100% of GDP under President Barack Obama.

Myth No. 3. Government regulations are hurting business, killing jobs and are bad for the economy.

It was lack of regulation that produced the financial crisis of 2008, created massive unemployment and undermined the economy. The US is already one of the least regulated economies in the world. Over the last decade, the World Bank has ranked the US no lower than seventh and as high as third on ease of doing business. The rankings are based on the amount of required government procedures, and on the types of regulations on employment standards and production practices. Singapore, Hong Kong and recently South Korea are the principle competitors for greater ease of doing business. In contrast, 31^st (out of 34 market democracies) is the average rank of the countries with whom the US is most comparable in worker safety, economic security and environmental standards. 

Big or Bad Government?

This essay may be reproduced.

Reprinted in St. Petersbug Times, Sept. 23, 2022, Page 15A

Big or Bad Government?

Edward Renner, PhD

The grid-lock in Washington over the role of government confuses two separate issues: the size and the function of government.

They are not same. 

The important distinction between them is the practical ways they affect our lives, today. It is not their rhetorical role as political ideologies.

We live in an increasingly complex globalized world. In the last 40 years the population of the US has increased by 50 million people. In that short time span there has been more change in communication and commerce than in the previous 400 years. 

We need government standards to assure airline safety, food purity and drug effectiveness. We need federal oversight to prevent financial institutions from taking speculative risks with our money. 

One measure of the total size and scope of our modern global reality is our Gross Domestic Product (GDP).

By this measure our government is no larger now than when we were born. Government expense as a percentage of GDP has remained relatively constant for the past 60 years.

Contrary to what is often claimed, the huge annual budget deficit and accumulated federal debt is not evidence of "big" government. These are unpaid bills due to reduced levels of revenue and borrowed money to pay interest on borrowed money.

Throughout our entire history, with two exceptions, revenue has always been adjusted to keep pace with expenses. In 1981 and again in 2001 our government reduced taxes and essential government oversight of predatory corporate and Wall Street practices.  The economic toll of reducing the role of government started with Enron and culminated in the financial bailout and stimulus package required by the financial crisis of 2008.

The spike in spending after 2000 is compounded by the invasion of Iraq on false pretenses and the policy of paying for the war with borrowed money.

These outcomes are the result of "bad" government, not "big" government. They are mistakes of judgment that can and should be reversed. 

We are not going to fix "bad" government by reducing Federal spending relative to GDP. We need and deserve our government to grow in capacity with the increased size and complexity of living in a globalized world. 

We can fix "bad" government by taking the necessary steps to ensure that our government protects the general health, safety and well-being of its citizens. I want my government to contain predatory corporate and Wall Street practices. I want my government to speak the truth about the expanding global issues we face, and to engage in civil civic discussions to find practical solutions, not to grandstand political ideologies. 

Good government is our civic responsibility. We can start to reclaim good government by not confusing “bad” as being synonymous with “big.”

Size is not the problem. It is the quality.

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Professor Renner teaches in the Honors Program at the University of South Florida. This essay is based on his podcast series “Forums for a Future” at www.kerenner.com.