History Book: America’s fiscal journey

NICK EICHER, HOST: Today is Monday, January 6th. Good morning! This is The World and Everything in It from listener-supported WORLD Radio. I’m Nick Eicher.

MARY REICHARD, HOST: And I’m Mary Reichard. Up next, the WORLD History Book. Almost 200 years ago, an American president set out to make America debt-free—with unintended economic consequences. Here’s WORLD’s Emma Perley.

EMMA PERLEY: Right now, the U.S. national debt stands at 36 trillion dollars. And the number keeps going up. The government spends more than 2 billion dollars on interest payments alone every day. Audio here from Senators Joe Manchin and John Neely Kennedy.

JOE MANCHIN: We’ve been spending more than we bring in in our government every year for the past 21 years.

JOHN KENNEDY: Let’s suppose nothing changes over the next ten years. Nothing. What’s the debt going to be ten years from now?

PHILLIP SWAGEL: Our projection is then over 50 trillion dollars, or over 122% of GDP.

America is no stranger to borrowing money. It’s had national debt since the very beginning. Some of the American founders got loans from Europe to fund the Revolutionary War. And several U.S. presidents since have tried to tackle the deficit. But only one has succeeded in paying it off entirely. Voice actor Ed Phillips reads President Andrew Jackson’s first inaugural address.

ED PHILLIPS: The management of the public revenue—that searching operation in all governments—is among the most delicate and important trusts in ours.

190 years ago, Jackson seeks to eliminate the national debt completely. He believes that being debt-free is the only way to have a small government and virtuous citizens.

Jackson is partly motivated by his own experiences. When he was a land speculator, a deal went sour and he spent time paying off the loans.

But he also has a more democratic reason: he dislikes the national bank set up by Founding Father Alexander Hamilton. To Jackson, it signifies a more powerful central government than the Constitution allows. Audio here from Alexander Salter, an associate professor of economics at Texas Tech University.

SALTER: He was, even by the standards of his own day, a debt and deficit hawk. He did not like the Hamiltonian idea of a large and permanent debt, because he saw it as contributing to a permanent financial oligarchy, a class of people that just lived off of interest payments from the federal government funded by tax revenue.

In order to pay off the debt, Jackson raises import tariffs, postpones a recharter of the national bank, and vetoes Congressional bills to fund the nation’s infrastructure. It works. For a while.

In January, 1835, the U.S. officially owes zero dollars. Politicians boast about American exceptionalism. And they look forward to economic prosperity and national security. In anticipation of a debt-free future, Senator Isaac Hill of New Hampshire says in 1833 …

ED PHILLIPS: The extinction of our national debt presents this nation in an attitude to excite the admiration of the world. There is probably on record no other instance of the kind.

But the celebrations are short lived. The economy begins to falter as the national bank dissolves. Then the real estate market crashes, wheat crops fail, interest rates increase. And the Panic of 1837 begins.

The government is forced to begin borrowing money again to handle the economic crisis. We’ve been in debt ever since. Many historians have pointed to Jackson’s refusal to recharter the national bank as one of the main reasons for the panic.

However, paying off the debt by itself didn’t cause the economy to sink into a depression. Jackson’s goal of a debt-free nation remains a noble one. In fact, only a few countries have ever achieved it.

But not all national deficits are created equal. American debt today looks very different from years past. For generations, debt went up during wars, but was quickly paid down during peacetime. That began changing in the 1950s. Here’s Alexander Salter again.

SALTER: There was a growing consensus among the economics profession that the federal government should act as a spender of last resort, or employer of last resort, to make sure that if the economy was in the doldrums, Uncle Sam would step in to provide purchasing power, to provide jobs. So you have this new idea of the government as a sort of guarantee of the health of the economy.

Another reason for growing debt is the removal of the gold standard. Paper money can now be printed at the government’s say-so. As extra currency floods the market, the spending power of the dollar decreases. That makes the American dollar less valuable, and as result, the debt becomes less manageable.

And it’s only been getting worse as the government often spends beyond its means. But that doesn’t mean there isn’t hope for change. Salter says that if the economy grows faster than the deficit, then the debt will naturally be paid down over time, although America may never again reach Jackson’s triumph of being debt-free.

SALTER: As long as we can keep debt growth below economic growth for long enough, we will, quite frankly, grow our way into the existing debt levels, and that will be much more sustainable.

That’s this week’s WORLD History Book. I’m Emma Perley.

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