Americans passed two historical landmarks during the past week, and while we suspect many people don’t readily see it, they were connected.
The first was the 101st anniversary of the death of President Warren G. Harding, who most likely suffered a heart attack on Aug. 2, 1923, in his hotel room while visiting San Francisco.
The other was news that the national debt has just passed $35 trillion, only seven months after it passed $34 trillion. The pace of new debt is beginning to snowball at an alarming rate.
The connection? Harding was a president whose administration presided over a government that actually cut the federal budget. That should make him a memorable figure after a century of mostly steady spending growth.
Before going too far down this road, it’s important to note that Harding’s administration also was known for scandal, including the Teapot Dome bribery scandal in Wyoming. We don’t intend to gloss over this. This isn’t an endorsement of all parts of his administration, just an acknowledgment of how government shrank during those years.
What really makes these two landmarks of interest today is that neither major-party candidate for president this year is talking about debt, and neither is emphasizing any sort of solution. As The New York Times wrote last week:
“Deep differences between Republicans and Democrats on policy priorities, and resistance within both parties to enacting cuts to the biggest drivers of the national debt — Social Security and Medicare — have made it difficult to reduce America’s borrowing.”
Those massive programs are on auto-pilot. Their popularity makes politicians unwilling to either change funding formulas or cut benefits, even though those realities are likely to be forced on Americans in a decade or so if nothing is done.
Social Security trustees have predicted that, absent any preventative action, the fund will be depleted in 2034. When that happens, only an estimated 79% of scheduled benefits could be provided.
Many people assume Congress will act when that time comes, but it may not be that easy. Social Security and Medicare may not be the only fiscal concern. The nonpartisan Congressional Budget Office predicts the national debt could be $56 trillion by then.
As the debt spirals skyward, annual interest payments rise as well, consuming ever more of the nation’s tax receipts. That payment is expected to reach $892 billion this year.
As the Peter G. Peterson Foundation explains it, this mounting annual outlay makes it “more difficult and costly to address pressing challenges and invest for the future. In fact, net interest costs will exceed outlays for all income security programs combined as well as defense discretionary spending this year.”
This means it will become increasingly harder for the U.S. to solve problems, whether they be the depletion of Social Security, war or recession.
Less than a year ago, the University of Pennsylvania’s Penn Wharton Budget Model predicted the nation could probably avoid fiscal catastrophe until its annual debt reaches 200% of the nation’s economic output, or GDP. And we’ve got about 20 years, probably less, until then. The current ratio of debt to GDP is approaching 123%, according to USdebtclock.org.
But the fiscal limit is just a guess. It’s hard to predict when investor confidence will turn and people will lose faith in the nation’s ability to pay its bills. When that happens, few options would remain other than to inflate the dollar and make drastic budget cuts.
Back in 1921, when Harding was inaugurated, the nation was suffering from its worst recession in memory, brought on in large part by the 1918 Spanish flu pandemic. The Dow Jones average had crashed by 47% since 1919, according to the National Review.
Harding let the recession run its course — perhaps the last time that happened, as well. But then he and Congress enacted cuts that took federal spending from 6.5% of GDP to 3.5%. They cut taxes as well, bringing the top rate down from 73% in 1921 to 46% in 1924, according to the Tax Foundation.
Meanwhile, the National Bureau of Economic Research estimates that unemployment in the civilian labor force fell from 11.9% in 1921 to 3.2% in 1923. It didn’t vary much from those levels until the Great Depression.
In other words, a group of politicians a century ago succeeded in saving the economy from ruin while drastically cutting spending. It could happen again.
Granted, the federal government was much smaller then and the electronic mass media wasn’t yet sophisticated enough for lobbyists to send out dire warnings about each intended cut.
Still, that doesn’t exempt today’s candidates from the need to seriously address what is arguably the largest pending national crisis. This failure isn’t likely to sit well with future generations.