How America’s Fiscal Condition Unraveled After 1980, Part 2

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As we implied in Part 1, the Reagan years comprised a decisive turning point (for the worse) in America’s fiscal and therefore economic history. Outside of war and the severe global depression of the 1930s, America actually had a pretty decent fiscal track record—the inherent weaknesses of democratic governance on fiscal matters to the contrary notwithstanding. For instance, those 48 surplus budgets during the 65 years encompassing 1866 thru 1930 were surely nothing to sneeze at in the annals of fiscal history among modern democracies.

In fact, prior to the 1913 creation of a central bank with a printing press capable of monetizing the public debt, America’s fiscal record was nothing short of remarkable by present day standards. At the end of the civil war in 1866 the public debt totaled $2.86 billion, which represented 44% of GDP and $78 per capita.

Yet after decades of budget surpluses during the second half of the 19th century, no income tax, no Welfare State and no peacetime military that amounted to anything much, the public debt had been reduced to $1.19 billion by 1914. Accordingly, nearly 60% of the Civil War Debt had been paid off and what was left amounted to a virtual pittance in the scheme of things: It was only 3.1% of the nation’s $39 billion GDP at the time and represented just $12 per capita. And, no, we did not omit any zeroes!