It’s all very confusing. During every presidential election
you hear about the national debt (not to be confused with the national
deficit, which we’ll get into in a bit) growing out of control. You
hear how the debt is larger than ever, and how we are leaving it behind for future
generations to pay.
If the American economy is one of the largest and most
powerful economies in the world, how come we owe so much money? Wouldn’t it
make sense that the national debt was higher during the years when the economy
struggled, such as during the Great Depression of the 1930s?
We can answer some of those questions very quickly. Was the
national debt larger during the Great Depression? No, not even close. During
the first year of the Great Depression (1930), the entire national debt was
around $16 billion dollars. These days, it increases by that amount every few
weeks (the national debt is currently over $7 trillion, over 400 times what
it was in 1930).
To explain how it all works, and why the national debt is so
high, let’s first get some definitions straight. The “national debt” is the
total amount of money that the government owes. Most of the time, one part of
government owes money to another part of government (such as the Federal
Reserve Bank). Other debt is owed to private accounts (i.e. pension
accounts, mutual funds, bonds, insurance companies, etc.).
The amount of money the government owes is not the “national
deficit.” The deficit is the yearly amount that spending exceeds revenue. In
other words, if you add all of the national deficits up year after year, you
come up with the current national debt (there have been a few years that
have resulted in a “budget surplus,” where the government took in more money
than it spent).
By definition, the national debt continues to grow each
year, so long as the government spends more money than it receives. For that
reason, it’s not reasonable to compare today’s national debt with the debt
during the Great Depression—that was a long time ago. When the United States first became a nation in 1787, and its economy was smaller than many of the nations in
Europe, the national debt was only a few million dollars (literally a
million times smaller than it is now).
While the national debt wasn’t large during the Great
Depression (at least by today’s standards), the event did pave the way
for the situation that currently exists. To bring the nation out of the
depression, President Franklin Roosevelt promised a “New Deal.” He actively
engaged the federal government, and created hundreds of programs across the
country in hopes of creating jobs and stimulating the economy.
Of course, these new programs cost money. The government
was spending much more money than it was taking in (remember, people did not
have any money to pay taxes during the Great Depression), so each year
ended with a large national deficit. During Roosevelt’s first term, the
national debt increased by nearly $14 billion, which nearly doubled it. With
the exception of war time, this was far more than the national debt had ever
increased during a short time period.
Roosevelt also changed the scope of the federal government.
Since the Great Depression, it has become accepted—and even expected—that the
national government will spend money for programs that help its citizens. This
adds up, thus leading to a large national debt.
Fortunately, nobody is going to come to you and ask you
reach into your pocket to pay back the $7 trillion debt. It doesn’t need to be
paid back at one time. Politicians and economists are working together to find
ways for the government to spend money more efficiently, and to slowly pay back
the debt without issuing unreasonably high taxes and fees (such as your
water bill or electricity bill).
