Economic Data Interpretation

I decided to try to determine how bad the current debt is relative to historic debt situation. The raw data collected is at BudgetData.html.

The first source of data was the official debt as recorded by the United States Treasury. The debt figures go back to the founding of the current (Constitutional) government of the United State in 1791. It was $75,463,476.53. This represents debt accumulated under the former government, the Articles of Confederation, and I presume the government before that, the Second Continental Congress, representing primarily the cost of the Revolutionary war.

This debt was almost completely paid off by 1835, even after an amount was added for the Barbary Wars and the War of 1812. Then it was allowed to increase to about $40,000,000, where it stayed until the Civil war. This debt would have included the debt for the War with Mexico.

The Civil war brought the debt up to more than $1,000,000,000 for the first time, in fact, it was over $2,000,000,000. This has never been paid back to the pre-war levels, and the debt has never been below $1 billion since.

The next spike corresponds to the First World War debt. This brought the debt to $27,390,970,113.12 by the end of the war. There was an attempt to pay back this money (as there was on all previous wars) until 1930, when the debt was $16,185,309,831.43. This corresponds to the first time the claim was made that deficit spending stimulated the economy, so the debt skyrocketed to $48,961,443,535.71 by the beginning of the Second World War. This is really the only time that I can see the debt increasing significantly without a war.

The Second World War brought the debt up to $269,422,099,173.26. During 1946 and 1947 there was a start made at paying off this debt, but it was not continued. I have no doubt but the Cold War was cited as the reason for stopping the payments.

Since the Second World War the debt has climbed every year except 1969. The rate has been constantly increasing, with the exception of the Clinton years, when the deficit (rate of increase) actually went down. In fact, the deficit decreased to less then $18 billion in 1999. Since then Bush has increased the deficit to the pre-Clinton levels.

The immediate lesson to be learned is that the United States likes to start, and take part in wars, but the people are unwilling to pay for them. Of course, this means that the wars have been paid for ten times over in the form of interest on the national debt.

Starting with FDR, the United States has also found other reasons for increasing the debt, such as "stimulating the economy." I will point out that I've seen no consistant evidence that this works, but the truth often plays second fiddle to distortion in politics. To an extent, this shows that economically, the United States has never really worked since about 1835, although recent years have seen an even worse deterioration.

For example, after each war there was an attempt made to pay the cost of the war. It hasn't worked since the war of 1812, but still it was tried. There was even an half-hearted attempt after the Second World War. But when the Cold War ended, even the mildest attempt was not made.

The third column lists the deficit, based on the second. The fourth column represents the percentage the deficit is of the total debt. I had hoped this might show something, but I concluded that it is not significant. The largest percentage increase was in 1835, but that is true only because the amount of the debt was so low. Recently, the percentage increase hasn't been that high, but only because the debt is already so high.

The fifth column is the GDP. I thought this might be interesting, because I've heard people say that the amount of the debt as a percentage of the GDP is decreasing. After thinking about it I realized these figures may actually be doctored. After all, its the government putting the figures out, and they are only estimates (as I recall, the last three or four years were labeled as such in the Statistical Abstract). That is, by stating or estimating these figures as high, the government can make the debt as a percentage of GDP as small as they want.

In fact, these figured peaked at 110? at the end of the Second World War (the figure are not available before then), with a second high in 1995, sparked by the Reagan deficits. In 1981 it was 33.6? of the GDP, in 1997 it was 67.9?, more than twice as high a percentage of the GDP. Clinton brought the percentage down again, to 57.95? in 2001. Bush's budget deficits have built it back up again to 66.75?, virtually the same as Reagan. Of course, this last figure is based on projections.

Then I noticed that the Statistical Abstract had a column for inflation. That is, it showed the present value of a 1995 dollar in all the years covered (back to 1941). Therefore, I decided to alter my data to make a correction for inflation, as that is commonly done.

This didn't actually change the conclusions very much, except to note that the last two years of the Clinton administration shows the debt as actually decreasing when adjusted for inflation. Also, the decrease in 1959 was actually wiped out due to inflation. It still wasn't much.

Then I remembered a WEB site that I saw that allowed me to type in an amount, and two years. It would then tell me how much the item bought in the first year for the amount would have cost in the second years, adjusting for inflation. This site is http://www.westegg.com/inflation/.

First, I have not verified the data for this column. That is, this is accurately what the WEB site showed, but I am not sure where the figures came from.

The procedure was to set the amount at $100.00, and the first year at 1995. Then the second year was put at all possible values between 1800, which is the lowest date the site will take, to 2005, which is the highest date. The result was then divided by 100 to give the value of the 1995 dollar in each year.

Note that the figures I get this way do not correspond to the government figures. The main reason for using this is that the government figures only go back to 1941, and I had heard there was some deflation during the depression. In a world were everyone says inflation is, and has always been, this seemed interesting to investigate.

This was very revealing. The most startling thing is the inflation. What cost $100 in 1995 cost $11.47 in 1800, and during most of the nineteenth century deflated to $6.06. About 1919 this figure rose to about $11 again, and there was some deflation during the depression, bringing the value of the $100 item to about $8.40, still not as low as the "traditional" value of the dollar. This indicates that any statement about a deflation problem during the depression is probably overstated.

Inflation really didn't start hitting until 1941, the exact year the values given in the Statistical Abstract start. The WEB site shows our $100 item to be worth $9.35 that year, whereas the government says $10.30. After that, value of the item was constantly increasing (although the rate varies) until its current value (2006) which is $117.47 according to the government, and $124.42 (for 2005, the last year) by the WEB site.

This tends to indicate that inflation, rather than being a problem for all times, is simply a problem for the second half of the twentieth century. Before that, prices were stable.

If these inflation figures are used, then the debt situation looks slightly different. That is, Clinton still gets credit for balancing the budget (allowing for inflation) in 1998/9. However, the adjusted figures show that Carter, also, balanced the budget in 1978, 79, and 80. The reason this may not have been obvious is that the inflation rate was so high. Also, 1973, Nixon balanced the budget after inflation. In 1968 the budget was balanced. Also, 1964, 1959, 1956, 1955, 1954, 1951, 1950, 1948, 1947, and 1946. Before that, there was little inflation, so inflation didn't change the debt realities.

This shows that adjusting for inflation, there was an attempt to pay off the money during the 1940's and 1950's. Also, since Kennedy, the Democrats have done a better job of attempting to decrease the Debt than the Republicans, or I should say the Democratic Presidents.

The Constitution tends to indicate that the budget was supposed to be the responsibility of the House of Representatives. In fact, the founding fathers thought this duty could be used to keep a rogue president in line, since they considered the power of the purse bigger than that of the President.

While the current debt situation is not significantly changed by the adjustment for inflation, I question whether having the debt decrease due to inflation is anything to be proud of. For 150 years the country had no significant inflation (In fact there was a significant deflation associated with the Industrial Revolution finally reaching the United States in the early nineteenth century.

Inflation is the same as a tax. That is, if the government allows (and by controlling the money supply, since about 1915 or so the government has controlled the money supply) inflation to occur, that is the same as a tax on anyone who happens to have money, or is earning money for a fixed salary or wage. This is also a change in meaning of what the word "dollar" means. That is, what cost me $100 in 1995 would have cost me $6.06 in the nineteenth century. Therefore, when dollars are spoken of during that time frame I must keep in mind that the meaning is different than today, in that 6 of those dollars had the same meaning as 100 (or 117) of my dollars now.