No Not Nikki! (Part 1)

The graph below seems prosaic enough. Technically, it tracks in 2023 dollars of purchasing power the rise of the public debt since 1966. Beneath the figures, however, lies a shit-ton of modern political, policy and financial history—deeply embedded forces which drove the numbers and set the nation’s fiscal trajectory on a pathway to disaster.

The starting point of 1966 isn’t random. The latter was the year in which LBJ’s “guns and butter” policies went into high gear, fueled by a spending surge for both the Great Society and the dramatic escalation of Johnson’s genocidal war on the peasants of Vietnam. And it was also the year in which LBJ famously manhandled the Chairman of the Federal Reserve down on his ranch in Texas, demanding that the Fed print the money to support his boys “bleeding and dying in the jungles of Southeast Asia”, as he so crudely put it.

Notwithstanding these unfortunate lurches toward the drink, an inspection of the graph makes clear that the actual inflection point in terms of the explosion of the nation’s public debt did not occur for another 15 years. Thus, in current dollars of purchasing power the public debt of $2.36 trillion in 1966 rose only slightly to $2.76 trillion by 1980, representing a pretty tepid 1.4% annual growth in real terms.

So even with a moderately more accommodative Fed after William McChesney Martin got the LBJ “treatment” and surging bills for the domestic Welfare State that Nixon and Ford did little to reverse, there was simply no sign circa 1980 that America’s politicians were about to uncork a runaway public debt.

Alas, the next 43-years proved otherwise, as what had been the flat part of the chart below virtually went vertical.

Again, in today’s dollars of purchasing power the theretofore contained public debt rose 14-fold, from $2.7 trillion in 1980 to upwards of $33 trillion today. That surge embodied a dramatically higher 6.0% per annum rate of real growth.

Needless to say, over any considerable period of time, the law of compound arithmetic is a monster. Had the public debt stayed on the 1966 to 1980 path of 1.4% real growth, the public debt today would be $5 trillion, not $33 trillion, And annual interest expense on the Federal debt calculated at a standardized 4% rate would be $200 billion, not $1.3 trillion.

So, the fiscal apostasy since 1980 truly does need some ‘splainin’. The flattish trend before 1980 shows that burying the nation in insuperable public debt wasn’t the inherent tendency of elected politicians after all. Something major changed.