In the first part of this series on the history of the national debt, we looked at what factors caused the national debt to grow or shrink in the short-term. This week, we will take a step back and focus on how successive presidential administrations have affected the national debt over time.
As we discovered last week, the biggest leaps in debt growth occurred in years of war, economic crisis, or massive legislative acts. The biggest declines occurred when there was not only booming economic growth but also leadership with a commitment to paying down the debt through spending reductions and improved tax revenue.
We can really see these factors at play when we look at the debt-to-GDP ratio since 1790. Wars, especially the Civil War and Second World War, are the most noticeable spikes, although you can also see the effects of significant economic downturns like the Great Depression. Yet we see a gradual trend toward higher debt levels behind all the hills and valleys, indicating a shift in fiscal management, especially in the times of relative peace and prosperity during the later 20th century.
So how do the presidents stack up on their handling of the debt? Before we try to come up with some ranking, we need to establish how we will do this. There is no simple way to judge the presidents on their handling of the debt. Here are some of the problems:
1. We can’t look at how high the debt reached during a president’s administration. Presidents have no control over how much debt they inherit when they take office, so we will look at how the debt changed under their administration.
2. The historical range of presidential terms runs from one month to twelve years. If we were to rank the presidents by simply the growth or decline in the debt under their administrations, Andrew Jackson was the most successful president at reducing the debt–a 99.4% decrease–while Franklin Pierce is far behind him at #2 with a 51.7% decrease. Yet Jackson served two terms to Pierce’s one, giving him twice as long to accomplish his feat. We can try to account for this by taking the average annual change in the national debt under each president. This also helps reduce the impact of financial crises and temporary fiscal commitments like wars or major pieces of legislation.
3. We need a way to measure the magnitude of debt reduction or expansion. Even if we adjust all historical data to 2005 dollars, Andrew Jackson only needed $1.3 billion to pay off the entire national debt. We can try to account for this by looking at annual change as a percentage of GDP. This will also show the effects of sound economic policy, because economic growth can help bring down the magnitude of the debt relative to GDP, making it more manageable.
So if we look at the average annual change in the debt as a percentage of GDP, the following presidents were the most fiscally prudent:
1. Warren G. Harding (-1.59%)
2. Calvin Coolidge (-1.02%)
3. John Quincy Adams (-0.70%)
4. Ulysses S. Grant (-0.68%) – tie
4. James Monroe (-0.68%) – tie
6. Chester Arthur (-0.66%)
7. Andrew Jackson (-0.65%)
8. Thomas Jefferson (-0.53%)
9. James Garfield (-0.44%)
10. Grover Cleveland (-0.27%)
Let’s position these ten presidents graphically:
Now let’s look at those presidents who oversaw the greatest annual increases in the debt:
1. Barack Obama (10.28%)
2. Franklin D. Roosevelt (9.27%)
3. George H.W. Bush (6.16%)
4. Abraham Lincoln (5.81%)
5. Ronald Reagan (5.17%)
6. George W. Bush (4.32%)
7. Gerald Ford (4.17%)
8. Woodrow Wilson (3.94%)
9. Harry Truman (3.26%)
10. Jimmy Carter (3.02%)
Here is where they place on the debt chart.
You can see the full ranking here: Presidents and Debt.
We must be fair and recognize that a big part of the numbers is luck. Almost all the top ten fiscally successful presidents held office during times of peace and prosperity, usually following wars when the cost of government was winding down. Most of the bottom ten had to contend with those wars, or saw revenues decrease during recessions.
But what is striking about this data is the way the way the most and least successful presidents seem to fall chronologically. Eight of the ten most fiscally successful presidents held office during the 19th century, while only one of the biggest debt-growers was during the 19th century.
Why is this? The U.S. government in the 19th century generated its revenues from tariffs and generally financed its operations within its means. Borrowing was avoided except during times of war or slower trade. It was also possible for a party to build a tax platform on the idea that tariffs were beneficial to the economy–Republicans and Whigs did so.
This system changed dramatically following the progressive era at the turn of the 20th century. The federal government increased its obligations by projecting power internationally and fostering a growing social safety net. These operations were financed by new revenue sources, including the income tax, payroll tax, and corporate tax. These are taxes which most people do not enjoy paying, and they vote accordingly. As a result, fiscal responsibility has become politically unrealistic. The American public has adopted a policy of expanding government programs while reducing revenues when possible. The ensuing debt can even be politically advantageous since it is easy to blame one’s political enemies for the resulting debt.
This 20th century fiscal model is unsustainable. Put simply, it means having ones cake, eating it too, and saying to future generations, “let them eat cake.” Economists generally agree that high debt-to-GDP ratios can put pressure on both economic output and government borrowing costs. The most cited study, by Reinhart and Rogoff, places the threshold at 90%. Since debt has reached that number two years ago, there is a distinct danger that we will soon suffer the consequences of fiscal irresponsibility. As far as we can tell, our statesmen do not disagree. The Obama administration as well as Vice Presidential candidate Paul Ryan have called reducing the national debt a “moral obligation” to future generations.
In this case, a simple ranking proves insufficient, and that the blame for the debt can be laid upon a collective embrace of this model. But at the same time, rolling back our safety nets, retreating to isolationism, and reverting to a 19th century tax system is just unrealistic. In crafting a 21st century model, we can still look at the historical precedents we identified in the first part of this series:
- Economic Prosperity: If the economy is growing, tax revenues will increase and the share of the debt to GDP will decrease, making the debt more manageable.
- Fiscal Frugality: The government has historically reduced its debt by living within its means, even when that meant sacrificing well-intentioned projects. This was an especially important maxim for our two most successful presidents, Coolidge and Harding.
- Tax Reform: Another fact of life is that the government needs to raise enough revenue. This was especially integral to the government’s fiscal success in the decades following the Civil War. But make sure that it doesn’t thwart #1.
- Wars: Avoid foreign entanglements at all costs. This should be a maxim anyway, but it’s regrettably unavoidable at times.
- Major Legislation: This is one of the most insidious contributors to the national debt. If you have to spend more money to finance the government, recessions will have a greater impact. This explains why the 2008 recession had a much greater impact on the debt than the Great Depression, even though its severity and duration were much smaller.