Keynesian Central Banking And The Death Of Fiscal Discipline

One of the advantages of being around awhile is that it is hard to deny the “drift” of history when you encounter it over an extended time period. After yet another Washington episode of kick the debt ceiling can, therefore, we can’t help notice the accumulating fiscal folly.

When we first alighted on Capitol Hill as a legislative assistant in 1970, Republicans professed to be concerned about the rising public debt after a few years of LBJ’s “guns and butter” fiscal excesses. At the time, the public debt was $390 billion, which amounted to about 36% of that year’s $1.09 trillion of GDP.

Alas, since then the GOP has occasionally referenced the old-time catechism about the dangers of rising public debt at Lincoln Day dinners and party electioneering events. But despite controlling the White House 60% of the time since 1970 it has done virtually nothing about numbers that have grown to elephantine proportions. That is, the 36% public debt-to-GDP ratio of 1970 weighed-in at 120% in 2022.

To be sure, during the past 52 years there had been a lot of cumulative inflation and a goodly amount of real growth, too. So the nominal GDP had expanded to $26.1 trillion in 2022, or about 24 times its 1970 level.

When it comes to the nation’s public debt burden, however, all of that gain wasn’t of any avail at all. In round terms, the public debt reached $31.4 trillion in 2022 or about 81 times where it stood in 1970.

It’s as if a race is being waged between the public debt and the American economy’s carrying capacity. And now the winner is no longer even remotely in doubt.

Public Debt And Public Debt As % Of GDP, 1970 to 2022

So the question recurs. Why has this doomsday path continue unabated for more than a half-century, and what happened to the GOP’s old time fiscal religion?