Perhaps it’s apocryphal but the story goes something like this. Walt Disney was on the verge of a great creation but was short of money. He of course went to banks in search of loans. Naturally, staid bankers running their business by the numbers were not greatly impressed with a master of imagination. When he was rejected, it’s said Disney told one or more of these banks: “Fine. I’ll take my debt elsewhere.”
Debt can be helpful. Disney made the most of his, as have many individuals and companies over the years. While it’s sometimes said in a derogatory manner, debt is part of the American way. That is, when the debt allows great things to be achieved — such as attaining a college education — at a manageable cost, it can be good.
Debt can also be good when it comes to our nation. We used debt to win wars and even at the beginning, as John Steele Gordon wrote in his book, Hamilton’s Blessing: The Extraordinary Life and Times of Our National Debt, “The United States was born in debt.” Gordon tells how President George Washington asked Robert Morris to be Treasury secretary. The “financier of the Revolution,” Morris turned him down but recommended Alexander Hamilton, Washington’s aide-de-camp in the Revolution.
As early as 1781, … Hamilton had written Morris regarding the establishment of a proper national debt on the British model. “A national debt, if it is not excessive, will be to us a national blessing,” he wrote.
The key phrase is, “if it is not excessive.” The funny thing — and that’s funny sad — is that Gordon’s book was written with a concern for our national debt and published in … 1997! He put the debt then into perspective and how it happened.
In the first 184 years of our independence, we took on a burden of debt of $300 billion, mostly to fight the wars that made and preserved us a nation…. In the last thirty-six, however, we have taken on more than seventeen times as much new debt, at first in an attempt to maximize economic output, but in recent years for no better reason, when it comes right down to it, than to spare a few hundred people in Washington the political inconvenience of having to say no to one influence group or another.
The national debt at the time was $5 trillion. Today it is more than double. It is estimated to be several trillion dollars more in a few years. By any standard, especially by the crucial concept of being able to service debt, calling this debt level “excessive” is an understatement. This would be true even with an expanding economy, which we do not have now.
As Gordon put it in 1997, the same could be said today. Excluding the war on terrorism, we have arrived here “for no better reason … than to spare a few hundred people in Washington the political inconvenience of having to say no….” Our egregious expansion of spending, the ill-considered and ill-defined stimulus package being just the latest example, could be said to have gotten to this level for the same reason Gordon reminded us of when recounting the rise of Keynesianism among politicians.
It might be called the Madison Effect, in honor of James Madison’s famous dictum that “Men love Power.”
We have gone too far. The path we are on will make this exponentially worse. It is past time for elected officials to stand up and do their job. The profligate spending must stop or our “national blessing” will be our nation’s curse.
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