What will the result be of adding $1.9 trillion to the national debt? Will it restart an ailing economy? Will it lead to another great depression? Will it usher in a return to double digit interest rates and double digit inflation rates? Will the United States lose its position as the leading economic nation to China? Or will priming the pump like this lead to a major economic recovery, just like spending on a world war did in the 1940s? One might think that predicting the future can be gleaned from looking at the past. But it's never that easy.
Throughout U.S. history, there have been a number of recurring economic issues that have vexed Presidents. High tariffs, low tariffs or free trade? Gold, silver, bimetallism or none of these? Tight central control of the money or more economic power to the states? Even today, a century after Woodrow Wilson created the Federal Reserve Board, politicians like Ron Paul and his discuples renew calls to "axe the Fed!" Is rampant prosperity good, or is it a clarion call that a recession is looming over the horizon? Can the bursting of bubbles be predicted, whether they be in real estate, railroads or technology? And what about deficits and debt? When is it acceptable to spend your way out of a recession and when is there too much debt? Is today's government debt out of control, or is it within acceptable debt to GDP ratio parameters?
If looking at the history of how presidents handle the economy has taught us anything, it has taught us these lessons:
1. When the crisis is occurring, the answers are never obvious. For example, even after the panic of 1893, politicians couldn't agree if gold or silver was the answer. When the economy tanked in 2008, many still strongly argued that government bailouts were not the solution.
2. There are never any one-size-fits-all solutions. When John Quincy Adams and William McKinley (as a Congressman) pressed for high tariffs, parts of the nation were helped and parts were hurt. In Adams' case, high tariffs almost tore the nation apart as John Calhoun and the Nullifiers first gave very serious consideration to secession. Solutions to urban problems have often hurt agrarian America. The old adage "what's good for Wall Street is good for Main Street" isn't always true.
3. Presidents don't always learn from the lessons of the past. Even after Thomas Jefferson dismantled Alexander Hamilton's national bank and the nation suffered for it, Andrew Jackson still opposed its recharter after James Madison had reinstated it. Even after further economic "panic" followed from Jackson's decision (limiting Martin Van Buren to a one-term president), James K. Polk also opposed the central bank, opting instead for an independent treasury.
4. Optimism can be a powerful arrow in a president's quiver during hard times. Franklin Delano Roosevelt and Ronald Reagan are both renowned for leading their nation out of severe economic hard times. Even though in each case, recovery took time, both of these Presidents implemented a number of economic programs, and whether or not they worked, the perception of the public that they were slugging away at the problem and actually doing something carried each of them to further electoral success. Conversely, Jimmy Carter's "malaise speech" and his call for Americans to tighten their belts and prepare for hard times seemed to make matters worse.
5. In almost every election, pocketbook issues decide the day. As James Carville put it in 1992, "it's the economy stupid." Independent voters will almost always mark their X beside the candidate in whom they have the most confidence in, when it comes to putting them in the best financial position. Issues such as abortion, gun control or global warming, while very significant to many people, take a back seat to the confidence in or fear of the economic future for most voters.
I can't help feel that this is too superficial an analysis of a very complex issue. If there were obvious answers to the vexing economic issues that face the United States, there would be more Warren Buffetts. But problems will become more complex as globalization affects the economy, making the American laborer a competitor with Chinese and Indian laborers as outsourcing becomes move attractive to corporate America's bottom line. Issues like the environment, immigration, health care, alternative energy sources and terrorism (direct and cyber) will complicate the economic calculus that future Presidents will have to grapple with. History offers much insight into these problems, but the future belongs to the bold and to the imaginative.
So after all of this, I still don't know whether adding two trillion dollars to the national debt means that it's time to buy or sell.
I promise a lighter subject for April!