The federal debt, the Hamiltonian norm, and the Calvin Coolidge way

What are the top issues for conservatives and for liberals, right now? For conservatives, the top three, not necessarily in this order, probably are illegal immigration, crime, and “woke” policies. For liberals, they probably are income inequality, abortion, and the threat they perceive to democracy in America.

Despite the threat it poses to the national well-being, our massive federal debt makes neither list. We wouldn’t expect debt to make the liberal list, but why isn’t on the conservative one?

During the Obama years, Paul Ryan, the most influential Republican of the time, focused his party one the debt problem relentlessly. Conservatives talked constantly about the matter. The blog I was with held a contest that awarded cash prizes to the entrants who contributed the best visual representation of the severity of the threat the federal debt poses to America.

Since then, according to this chart, the federal debt as a percentage of GDP has risen from around 95 percent to around 120 percent. The Government Accountability Office projects that it will reach 200 percent by mid-century. Yet, few conservatives talk about the debt these days, except when congressional Republicans threaten to cause the U.S. to default on it.

What happened? Donald Trump.

It’s not just that Trump fails to focus on the debt problem. He steadfastly opposes the reforms to Social Security and Medicare that are required to deal with it. And because Trump has dominated the GOP for eight years, the party has fallen mostly silent about dealing meaningfully with the federal debt.

I’m happy to report, however, that the Calvin Coolidge Presidential Foundation held a conference this week on “America in Debt.” The day-long event featured distinguished speakers including Paul Ryan, Phil Gramm, Chris Cox, Steve Forbes, Gene Scalia, Chris DeMuth, and Joe Manchin.

The Coolidge Foundation was an appropriate host for such a conference. The Harding-Coolidge administration inherited a huge debt by the historical standards of the time. Mostly as a result of World War I, federal debt as a percentage of GPD, which had been at basically zero in the first ten years of the century, was around 30 percent when Harding took office. And the economy was falling into a recession.

Under Harding and Coolidge, the debt to GDP ratio was a cut approximately in half and the recession was cut short. In every year of his administration, Coolidge balanced the budget and produced a surplus.

Harding and Coolidge were acting in accordance with what’s called the Hamiltonian norm. That means adherence to Alexander Hamilton’s insistence that America pay its bills and not go into debt except in highly unusual circumstances such as war.

Much of the conference focused on the erosion and eventual collapse of the Hamiltonian norm. Serious erosion began in the 1960s with the Kennedy tax cut. JFK believed in the norm, but he also believed in “experts.” His economic team, led by Walter Heller, did not believe in balanced budgets and avoiding debt.

Under Kennedy, Johnson, and Nixon, fiscal policy came to be driven by the government’s aspirations — e.g., full employment and ending poverty — not by the government’s revenues.

The collapse of the Hamiltonian norm came in the Obama years. During that presidency, debt as a percentage of GNP rose from around 77 percent to around 105 percent.

The U.S. has squandered opportunity after opportunity to address the debt problem. According to Ryan, there was bipartisan support in Congress for a fix during Bill Clinton’s second term, and Clinton seemed to be on board. Then came the Lewinsky scandal. Similarly, George W. Bush was looking to address the problem until he was knocked off course by Hurricane Katrina.

During Obama’s first term, the Simpson-Bowles Commission offered a serious proposal to address the problem. Ryan, who was on the commission, recalls that as soon as it adjourned, Obama and Nancy Pelosi issued statements rejecting the Commission’s recommendations as “simply unacceptable,” in Pelosi’s words. (Two years later, Pelosi changed her position but it was too late.)

With every year of inaction, the crisis has worsened and the pain required to fix it has increased. Absent a calamity, we won’t be enduring that pain during the next five years. Neither Biden nor Trump seems to have any intention of addressing the debt. In fact, as Ryan said, they are campaigning on not addressing it.

By the time one or the other (or Biden’s vice president) finishes his (or her) term, it will be all the more painful to fix the problem. And by the end of the term of whomever takes office in 2029, Social Security and Medicare might be bust.

What would a “fix” look like? In Ryan’s view, and that of every panelist who discussed the question, both Social Security and Medicare will have to be reformed. Social Security benefits will have to be means tested and the retirement age raised considerably. On the Medicare side, the fix should focus on markets and competition.

The Simpson-Bowles Commission recommended that federal spending be capped at 21 percent of GDP. Today, I assume, the recommended cap would be lower.

Beyond specific proposals, I’d love to see a revival of the Hamiltonian norm and of the mindset of Calvin Coolidge who said:

I regard a good budget as among the noblest monuments of virtue.

Unfortunately, today’s America lacks that kind of nobility and virtue.