Everyone is watching the debt these days

As we saw with the recent debt ceiling debates, U.S. debt is becoming a hot topic both in and outside Washington D.C. Tea-party Republicans have made it issue number one for both themselves and much of the Republican party, and it’s likely to be a major focus of the 2012 Presidential campaign. So why all the attention on a topic that was until recently a great way to lull someone into sleep?



Bi-partisan fiscal (ir)responsiblity

Many on the right will correctly claim that spending has greatly increased under President Obama. However, when we look at the data, we can see that increased debt and budget deficits were on a fast upward climb long before any of Obama’s policies had a chance to take effect. The recent economic collapse certainly played a big part, but the general trend to spend more began much earlier under President Reagan.

It’s ironic that Reagan, the darling of the current right-wing, presided over one of the fastest climbs in U.S. debt as well as sizable budget deficits, while President Clinton, who is often derided by the same people, was able to turn deficits into a large surplus. That said, most of Clinton’s time in office was with Republican control of both houses of Congress, a fact that surely effected his policies (and then there was the dot com boom).



We also see that while the U.S. is nowhere near the Public Debt to GDP imbalance of Ireland or even the UK, we are deep in the 90th percentile, which is usually a bad sign. China’s rapid growth has allowed it to enjoy an amazingly low 4% ratio. The ideal ratio is subject to some debate, but most economists would agree that the U.S. needs to get this number down. The recent unprecedented downgrade of U.S. credit by S&P, which echoed Chinese criticisms of a dysfunctional U.S. political system, highlights the level to which U.S. fiscal policy is a major international concern.



Who should we turn to for leadership in Washington?

Most people agree that the U.S. needs to move toward greater fiscal responsibility while still making investments in things like R&D and education, which have the potential to help grow the economy in the long term.

With this in mind the data paints a complicated picture. It tells us that both parties have been fiscally responsible and reckless at different times, as they took turns occupying the legislative and executive branches of our government. What it also tells us is that factors like WWII, the recent Great Recession, and perhaps most of all the limited choices government has during a recession, effect our financial position far more than the policies of either party. In the end, history teaches us that neither party as a whole can lay claim historically, or even in the recent past, to being the party of fiscal responsibility.