How did we arrive at a new normal of indifference to living on borrowed money? Federal budget deficits are poised to eclipse $1 trillion in 2020 and may never fall below that level again. There was hardly a word about this once-hot issue among Democrats or Republicans running in the midterm elections. Similar problems of matching spending with revenues exist at the state level, where unfunded pension liabilities grow while taxes are cut.
At the individual household level, following an uptick in savings after the Great Recession, most Americans can’t or don’t care about saving or balancing spending and income. About 80 percent of the population carries debt, totaling about $13 trillion, and one in five households have zero or negative assets.
The transition to this new normal has been as much a cultural story as a political or economic one. Whether one speaks of “thrift,” “living within one’s means,” or “pay as you go,” these were long the dominant values and standard practices of both governments and families. Throughout U.S. history, Americans and their government generally spent no more than their income or revenues and, ideally, would save some money. Of course, there were exceptions — such as wars and emergencies, and for individuals, poverty and other hardships — that necessitated borrowing. Economically, saving and investment were underpinnings of successful capitalism, and, morally, profligacy was a sin. Those who spent extravagantly were shady characters, while responsible budgeting was a sign of moral rectitude.
Benjamin Franklin, the original apostle of thrift, said: “Think what you do when you run into debt: You give to another power over your own liberty.” John D. Rockefeller Jr. etched in marble in the plaza of Rockefeller Center: “Thrift is essential to well-ordered living.” A World War I government campaign to sell war savings stamps simply said: “Spend wisely. Save sanely.”
That mindset began to change in the early 20th century, as a new middle class began to ditch the thrift ethic. Individuals and households were encouraged to buy on credit — not only to achieve the good life but also to rev up the economy, even as worries about rampant consumerism spread after World War II. Their elected representatives began overspending and under-taxing too — not just to stimulate the economy during downturns but as a new normal. America’s debt-to-GDP ratio more than doubled between 1981 and 1995.
Partisans on both sides helped fuel the debt binge. Republican administrations from Ronald Reagan to George W. Bush slashed taxes and increased spending, while professing to be aghast at rising debt. The Trump Administration now blithely plunges the country ever deeper into the red with tax cuts that will starve the budget and largely benefit the very rich. President Trump personally sets the tone, recently listing more than 540 creditors in his 2017 financial disclosure report.
The GOP’s most notable ongoing efforts to reduce deficits have been Scrooge-like cuts in spending for the poor, children, education and training, environmental protection, and health, while steering clear of the reforms necessary to really grapple with our debt challenges: changes to Medicare, Social Security, and other big-ticket mandatory spending reforms and/or raising revenues. Fiscal probity does not mean cruel and shortsighted policies that blow bigger holes in the budget while being indifferent to raising revenues and paying for national needs.
Americans have good reason to be concerned about creating better-paying jobs, making health care and quality education from preschool to college accessible to all, and keeping the nation a leader in science and innovation. Yet, they are also justifiably concerned about not bequeathing crushing debt to the next generations.
The popularity of Sen. Bernie Sanders (I-VT) shows that the move towards fiscal largesse is not limited to the political right. Many on the far left are now pushing for breathtakingly expensive measures like single-payer health care and guaranteed jobs and income, without offering any plausible way to pay for them. This great shrug on the left makes it difficult if not impossible for Democrats to make the Republicans pay a stiff political price for their own shrug at fiscal restraint.
Sound fiscal management accompanied by forward-looking investments in economic opportunity, children and families, infrastructure and environmental sustainability, and science, research, and economic growth should be a recipe not only for political success but also for American success.
Practically all Democrats want to boost public investment. Paying for it, however, is another matter. Raising taxes on the rich may be a good idea, but it won’t generate enough revenue to reduce debt and finance new initiatives. Nor has the party come to grips with the inexorable growth of mandatory spending on Social Security, Medicare, and Medicaid, which is crowding out vitally important investments in America’s economic and social development. Our country needs a progressive politics that calls for both greater equity and investments in national needs, and that begins to end the “what, us worry?” culture of trillion-dollar federal deficits and the free-for-all of personal spending.
True progressive Democrats can claim the mantle of being able to both help create a more fair and prosperous America and hold the line against a debt-plagued future. Democratic presidents from Jimmy Carter to Barack Obama have been much better fiscal stewards than their Republican counterparts, while preserving spending on national needs. Only Clinton achieved budget surpluses in the last half century. Obama, after running large first-term deficits to counter the Great Recession, reduced them by nearly two-thirds by the end of his second term. California Gov. Jerry Brown is expected to leave office with a $9 billion surplus thanks to prudent budget cuts and tax increases that have also enabled increased spending on education and affordable housing. These Democrats and others in their mold, including many in the new Congress—like Ben McAdams (D-Ut.), Dean Phillips (D-Minn.), Abigail Spanberger (D-Va.), and Madeleine Dean (D-Pa.)—offer a compelling contrast to Republican-led governments that have failed to either invest in our future or control the growth of our debt.
Andrew L. Yarrow, a senior fellow with the Progressive Policy Institute, is the author of Forgive Us Our Debts: The Intergenerational Dangers of Fiscal Irresponsibility and Thrift: The History of a Cultural Movement, and has recently published his new book, Man Out: Men on the Sidelines of American Life.