“If we run into such debt, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our calling and our creeds…[we will] have no time to think, no means of calling our miss-managers to account but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers…And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for [another ]…till the bulk of society is reduced to be mere automatons of misery…And the fore-horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.” Thomas Jefferson (1743-1826), 3rd President of the United States and author & signor of the Declaration of Independence
In a few weeks Congress will be voting to raise the debt ceiling. On one side, many of us don’t want to get into the hole any deeper than we already are. Many believe that raising the debt ceiling gives the government an excuse to spend more money. Considering the fact that the ceiling has never been lowered, I understand their point. On the other side, if we do not raise the debt ceiling, the country risks defaulting on our debt, which would drive interest rates up and lead to increased interest payments to our debtors. A compromise has been proposed whereby the debt ceiling would only be raised if spending cuts are made. Hopefully the recent downgrade of our economy to “negative” by the S&P, and the IMF’s (International Monetary Fund) determination that China will surpass America’s economy by 2016, will force our leaders to stop politicking and get serious.
Thomas Jefferson understood what the burden of debt would place on the citizenry if their government was an irresponsible steward. He also believed that any national debt should be paid off within 19 years, within the same generation, so as to not pass it down to the next. In fact, at the close of the American Revolution, we were over $80 million (about $1.8 billion today) in debt, $12 million of which was owed to foreign countries, mostly France. It was agreed by our leaders that defaulting was not an option, as it would affect the economic strength of our new country. So, in 1792 all foreign debts were paid off first. However, it was not until 1835 that the remaining debt was paid off under President Andrew Jackson. Unfortunately, though, we only managed to remain debt free for one year.
But how did Jackson do it? Well, prior to the 20th century, politicians actually hated debt, and Andrew Jackson was in front of the pack. Believe it or not, the political battles back then revolved around how fast to pay off the debt, not whether or not to pay it off. When Andrew Jackson was elected, he was determined to get rid of the debt, so he started selling public land out west, taking advantage of a real estate bubble in the territories. He also vetoed every spending bill that he could. When he took office in 1829 the national debt was $58 million (about $1.4 billion today). Six years later it was paid off in full, with the treasury actually showing a surplus. And then – shocker – he started to return the surplus money back to the states. Then the land bubble burst due to bank speculation, and the nation sunk into a six year depression (sound familiar?). We have never been in the black since.
However, the fact that we actually managed to pay off the debt at least once shows us is that it can be done. With a sincere effort by responsible men and women who are unafraid to make tough decisions, we can get our budget in order, keep our credit intact, and increase our economic growth. If our creditors, both foreign and domestic, knew that we could be trusted to pay our debts no matter what happens, our national credit will weather the storm even if we do not raise the debt ceiling. First though, we have to cut spending. Thoughts of even increasing the debt ceiling without cutting spending is like trying to fill a leaky bucket with a garden hose. Second, we need to prioritize programs and services based on actual need, instead of political need. Third, in order to ensure that the repairs we made to the budget are not undone, we must elect or appoint only those that have proven themselves over time to be good and honorable stewards of their own finances. Tax evaders and those that fail to pay creditors by using bankruptcy as a part of their business growth model should automatically be disqualified from public service.
And yes, I am talking to you, Mr. Treasury Secretary Tim Geithner. You too, Mr. Donald Trump.
“I am for a government rigorously frugal & simple, applying all the possible savings of the public revenue to the discharge of the national debt; and not for a multiplication of officers & salaries merely to make partisans, & for increasing, by every device, the public debt, on the principle of its being a public blessing” Thomas Jefferson