A blessing of debt


WASHINGTON -- In 1916 the national debt could have been paid off by the nation's richest man, John D. Rockefeller. This year the two richest Americans, William Gates and Warren Buffett, working together would go broke trying to pay even two months' interest -- approximately $50 billion -- on the national debt.

Does that get your attention? It is from John Steele Gordon's lively little book, "Hamilton's Blessing: The Extraordinary Life and Times of Our National Debt." This 198-page primer appears just in time for the beginning of the great debate of this year, and perhaps of the remainder of the decade.

The debate is about the proposed constitutional amendment to require a balanced budget -- or, to be precise, to require supermajorities of 60 percent in both houses of Congress to authorize a deficit. Mr. Gordon's subject is debt, a subject for which few people have had anything nice to say since Alexander Hamilton said in 1781 that "a national debt, if it is not excessive, will be to us a national blessing."

So it has frequently been, and a blessing to the world, too, in two world wars. Establishing sound public finance was the first challenge of the new nation, which is why the Treasury Department had 40 employees when the State Department had but five. The sale of government bonds to banks was crucial to expanding the money supply, which ignited commerce, which united the regions.

Not, of course, without the Civil War. But it was won by the men and materiel financed by a 42-fold increase in the national debt between 1860 and 1866. War, a wise man once said, is the health of the state. It certainly has fattened up the national debt, which went from $1.2 billion in 1916 to $25.4 billion in 1919, and from $48 billion in 1941 to $269 billion in 1946.

There have been, Mr. Gordon notes, seven periods in which the debt steadily increased, six when it declined and three when it was stable. Six of the seven periods of increase involved either a major war or depression. It is the seventh period, which began in 1960, that is ominously different and has driven the nation to the brink of constitutionalizing the pay-as-you-go principle.

In the last 36 years business fluctuations have been, on balance, remarkably mild and the Vietnam War was, relative to the size of the economy, a small burden. Yet the national debt has increased 17 times more than in all of the nation's first 184 years. In the past 15 years federal revenues have increased 25 percent (largely because of, not in spite of, the Reagan tax cuts and reforms) and our principal foreign adversary has imploded, yet the debt has soared.

Why? Here is a hint: In 1985, the year the deficit finally became a large political issue and Congress passed the Gramm-Rudman law that was supposed to control it, Congress also enacted 54 new benefit programs, bringing the total then to 1,013.

$1,000 per American

Why are there now debt-service costs of more than $1,000 per American per year? Because, Mr. Gordon writes, debt has served "the political self-interests of a few thousand people" -- federal elected officials in these 36 years.

He does not explicitly endorse term limits as part of his recipe of reforms, but he does cite "the transformation of politics into a lifelong profession" as part of the problem, along with the proliferation of political-action committees and a tax code full of vote-buying deductions and credits -- a code that has been amended more than 4,000 times, an average of more than an amendment a day, in the 10 years since the Reagan simplification of the code. Mr. Gordon proposes campaign finance reforms and a flat tax.

He emphatically does not endorse the "chimera" of a balanced-budget amendment, which he considers an invitation to gimmickry of the sort New York state used in 1992 when $200 million was needed to meet the constitutional requirement of a budget balanced out of current income. Were taxes raised or spending cut? Not exactly.

Instead, the state sold Attica Prison to itself. A state agency established to fund urban redevelopment borrowed in the bond market, gave the money to the state, and took title to the prison. The state recorded as income the $200 million its own agency had borrowed, declared the budget balanced, then rented the prison from the agency for a sum sufficient to service the $200 million debt.

Imagine the potential for fiscal prestidigitation at the federal level. Alas, one moral of Mr. Gordon's highly entertaining and informative story is this: The very habits of governance that make a balanced-budget amendment tempting make such an amendment problematic.

George F. Will is a syndicated columnist.

Pub Date: 1/27/97

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