Since marking red-letter days such as anniversaries of U.S. invasions and assassinations with post-mortems is all the rage, here is another that so far has passed unnoticed: 2013 is the year that the U.S. public debt is supposed to be retired, at least if you were a disciple of Bill Clinton.
As everyone knows, the public debt has not been disappearing but climbing — to right at $12 trillion now, or $16.8 trillion if you want to add in governmental debt holdings like the Social Security Trust Fund. The larger figure is scarier so it is commonly the one used.
You probably do not remember the 2013 debt-elimination schedule because it was never implemented. It's worth remembering now because it is handy to explain the "debt explosion" that Republicans have used to frighten the wits out of most Americans and the pointless stalemate that stymies the government and frustrates the country.
In January 2000, with some fanfare, Clinton released his fiscal 2001 budget, which would be the last of his presidency. The budget anticipated (and it would actually experience) the fourth straight on-budget treasury surplus. The actual surplus would amount to $236.4 billion in the fiscal year in which he was speaking and $127.3 billion for fiscal 2001.
Surpluses were forecast far into the future, and Clinton's budget dedicated those surpluses to early payment of all the nation's debt securities, which stood at something more than $5.5 trillion. The calculation was that the public debt — that held by the public, including foreign investors like China — would be retired in fiscal 2013. Right about now, America would have found the Holy Grail.
But Republicans held Congress and they had other plans, large tax cuts to free up the investor class and stimulate growth, and greater military spending, which Clinton and his predecessor, George H.W. Bush, had more or less held in check. Clinton's plan was dead on arrival, Democrats lost the election that fall, and you know what happened then.
George W. Bush and the Republican Congress, adopting Dick Cheney's famous epigram that Ronald Reagan had proved that deficits don't matter, slashed individual and corporate taxes, especially for investors and high earners, expanded tax breaks, started two wars and hiked military spending from $385 billion to $800 billion a year, expanded Medicare without raising taxes to pay for it, and beefed up the national-security state.
Clinton's surpluses, which he expected to pay down the debt, ended instantly and massive deficits replaced them — on-budget deficits of $538 billion in 2003 and $568 billion in 2004. The Great Recession hit in December 2007, followed by the financial collapse the next fall. Bush's final budget, fiscal 2009, showed a deficit of $1.55 trillion, although the off-budget figure of $1.4 trillion is more commonly used. Bush's bailout of the financial industry and his small stimulus program swelled the deficit that year and cascaded through the next two years.
Deficits have been coming down since 2009 despite Barack Obama's stimulus program. This year, the red ink will be in the neighborhood of $850 billion, and it will fall much farther in 2014 and beyond if the deficit-lowering provisions of Obamacare are allowed to kick in and the economy continues to grow.
But the message that has taken hold is that the nation's debt is speeding the end of the world and that it is Barack Obama's fault. So effective has it been that Obama has offered to halfway adopt the Republican religion that America is going to hell for coddling the elderly and disabled — society's nonproducers. Although Social Security has not contributed a dime to the deficits, he offers to lower future pensions.
The goal of no deficit and no debt is still a worthy pursuit as long as your means do not do even more harm. In a healthy economy like that which prevailed in Clinton's presidency, the remedy would be obvious: a return to exactly the terms of 2000 — tax rates that proved not to be a burden then, the 2000 patterns of defense spending and a stern regimen for health-care spending growth.
But that is not the economy or the political circumstance.
The debt that ought to be bothering everyone is not the public debt or the somewhat larger national debt that includes government-held debt. All the dire predictions about the soaring debt have proved absurd. Nations rush to buy U.S. debt even at historically low interest rates, and the dollar has been climbing against the Euro and other currencies. More than ever, the dollar is the safe haven for global money.
The real problem is the private debt of American households, which amounts to 75 percent of family income. When banks, seeking greater and greater profits, gave up the formula that people could only afford mortgage payments of 25 percent of their income, Americans took on a massive debt overhang. That and banking craziness gave us the financial collapse and the Great Recession, and it is still a pall over the economy. For four years, the government has spurned debt relief, which would have freed people to spend more money on things that create demand and jobs.
The avowed Republican plan to force a balanced budget through massive government spending cuts, if it succeeded, would leave commercial banks responsible for financing the nation's recovery. Remember how that worked in the last decade.