I Am Voting for the Economy

The federal budget has become a peripheral issue when it comes to the economy. The early-day decisions that a start-up company makes around financing have significant implications on the future success of the business. We have chosen to fund the growth of our country with reckless amounts of debt.

Voting for the Economy

81% of American voters say that the economy is very important to their vote in the 2024 presidential election, making it the most important voting issue in the election. But what does this actually mean?

Federal policy can prop up one part of the economy while adversely affecting another. Take Donald Trump’s tariffs for example. Back in 2018 when Trump implemented tariffs on steel and aluminum imports, the annual sales of domestic steel and aluminum producers rose by $2.8 billion, but this does not tell the full story of how the tariffs impacted domestic companies that use steel and aluminum as inputs in their products. The price of steel and aluminum rose 2.4 percent and 1.6 percent, respectively, and the annual production of these companies fell by $3.4 billion. So were Trump’s tariffs good for the economy? It depends on who you ask. If I worked for a steel or aluminum producer, I would have favored Trump’s policy, but if I worked for a company that uses steel and aluminum, I would have opposed it. To say that the economy is important to me is accurate, but to say that my vote is based on the candidate that is best for the economy is an oversimplification of economic policy.

We need to define the metric that we are using to evaluate the economy. More importantly, we need to understand that there is significant bias in what matters to us because we often care most about the specific industry that we work in, community that we live in, or age demographic that we fall within. Knowing a person’s job and the location of their home will give you hints about how they feel about the economy but knowing their age is likely the best predictor of their political affiliations. Just look at where party lines lie across different age groups. There is an economic reason for this.

Federal Debt

Federal debt likely matters to everyone, but younger people disproportionately care about this metric compared to older people because the negative effects of government debt are more likely to be seen long-term than short-term. People under the age of 30 are much less likely to support using debt to bolster short-term economic growth than someone who is 58 and on the brink of digging into their retirement savings. The motives of these two people are completely different. The 58 year-old wants a strong economy now to maximize the value of their retirement portfolio when they begin withdrawing from it and is less likely to see the consequences of growing federal debt in their lifetime. The 30-year-old is much more likely to face the consequences of debt down the line and does not care as much about short-term economic growth. If we do not acknowledge the validity of both conflicting motives, there is no way that we will be able to assess economic policy objectively; however, I will make the argument that we all should be placing more emphasis on government debt than we currently do.

To understand the current state of our economy and growing federal debt, we need to look back in time for perspective. Looking at the last 75 years broken into three different eras allows us to see the inflection points that lead us to where we are today.

1955-1981

Let’s go back in time to January 1955 when federal debt was a measly $271 billion, and Dwight D. Eisenhower was president. Eisenhower was a firm believer that the budget should be balanced meaning that government expenses should not exceed the revenue that the government brings in. When he realized that he was headed in the wrong direction relative to this goal in 1959, he implemented significant spending restraint with only minor tax increases in his 1960 budget. At this time, defense made up roughly half of the federal budget and Social Security made up only 11 percent. Medicare and Medicaid did not exist. The composition of the political parties was very different than it is now, and there was more of an emphasis to keep the budget in check. Eisenhower was successful with this feat, as he was able to reduce federal debt by 2.6 percent on an inflation adjusted basis. As a result, his approval rating averaged 64 percent. Aside from JFK, no subsequent president has come close to this approval rating.

From 1961 to 1974 JFK, LBJ, and Nixon followed the precedent set by Eisenhower; however, when Gerald Ford took office in 1974, both inflation and unemployment were on the rise. On top of these challenges, there was an energy crisis when the oil-exporting nations (OPEC) embargoed their shipments of oil to the United States. The embargo ended before Ford took office, but the price of oil remained high. Economists coined the term “stagflation” to explain this combination of negative economic forces. Ford chose to tackle the issues by going after inflation first. He cut government spending and raised taxes in 1974 but quickly changed course in 1975 when he shifted his strategy to focus on rising unemployment instead. He cut taxes by $22 billion and raised spending on government programs to jumpstart the economy. The recession slowly started to reside but not without causing a spike in federal debt. Jimmy Carter took office in 1977 and was able to reign in government spending and reduce federal debt on an inflation adjusted basis.

Overall, from 1955 to 1981 federal debt increased by $638 billion from $271 billion to $909 billion. Because of extreme inflation during the 1970s, this increase is not exactly representative of the true economics. If we adjust for the effects of inflation (as shown in the graph above), federal debt increased by just 9.1 percent.

1981-2001

1981 marked the start of a new economic era. After the turbulent '70s, the American people were sold on Ronald Reagan’s promise to stimulate economic growth by reducing government regulation and lowering taxes. The Tax Reform Act of 1986 brought the lowest individual and corporate income tax rates of any major industrialized country in the world. No one will question whether Reagan achieved his goals. Over his eight years in office, 20 million new jobs were created, inflation dropped from 13.5 percent in 1980 to 4.1 percent in 1988, and the unemployment rate fell from 7.6 percent to 5.5 percent. What was unique about Reagan’s economic policy was that he did not attempt to offset the effects of his tax cuts through reductions in government spending. The price to achieve all of this: gross national debt tripled during his time in office, and the American goal of striving for a balanced budget was put on the backburner not to be seen again through modern day.

While George H.W. Bush and Bill Clinton were able to come close to balancing the budget before accounting for interest payments, the government continued to run significant deficits after interest payments. The mentality of keeping taxes low and elevating government spending to promote growth prevailed. The overall effect from 1981 to 2001 was an increase in federal debt by $4.7 trillion from $909.0 billion to $5.6 trillion. On an inflation adjusted basis, this was an increase of 207.2 percent.

2001-2024

The narrative of the 1980s and '90s continued in the 21st century and was accentuated by new challenges. George W. Bush took office in 2001. His term in office began with the dot-com bubble recovery and ended with the Great Recession. Bush implemented tax cuts in both 2001 and 2003. High income taxpayers benefited most from these tax cuts with the top one percent of households receiving an average tax cut of over $570k between 2004 and 2012. Wars in both Afghanistan and Iraq caused military spending to balloon, and the Great Recession led to significant increases in government spending on unemployment insurance, food stamps, and other safety net programs. At the end of Bush’s term, he implemented the Troubled Asset Relief Program (TARP) and put Fannie Mae and Freddie Mac into conservatorship, which accounted for $250 billion of the record-breaking deficit in 2009. It was estimated that the Great Recession ultimately added $2.5 trillion (including the associated interest costs) to the national debt between 2009 and 2018.

Barack Obama took office in 2009 and immediately implemented the American Recovery and Reinvestment Act to boost the economy. The budget deficit in 2009 of $1.4 trillion was the largest deficit relative to GDP since World War II. Budget deficits gradually dipped below $1 trillion by 2013 and then averaged $550 billion from 2014 through 2016. Obama signed the Affordable Care Act into law in 2010, which was estimated to have reduced the deficit by $275 billion from 2010 to 2019. Over the life of Obama’s presidency, 77 million baby boomers retired, causing federal spending on Social Security, Medicare, and Medicaid to soar by 59 percent. These programs were responsible for 84 percent of the total federal spending increase over the eight years. There has been minimal reform around these programs, and they make up close to half of government spending today. On an inflation adjusted basis, the Obama term increased federal debt by 76.5 percent, which was the biggest increase since Reagan. While some of the increase can most certainly be attributed to the Bush administration’s response to the Great Recession and the Iraq and Afghanistan wars, the bottom line is that all eight years of Obama’s term ended with budget deficits.

Donald Trump took office in 2016, and like the others, his term was difficult to analyze due to the lagging effects from policy implemented in response to the Great Recession, as well as debt added due to the COVID-19 pandemic. The best way to analyze the impact of Trump’s term on national debt is to look at the ten-year impact of the laws and executive orders he signed. It is estimated that his policy added a combined $8.4 trillion to the debt over a ten-year period. Of this total, $3.6 trillion came from COVID relief laws and executive orders, $2.5 trillion came from tax cuts, and $2.3 trillion came from spending increases. The gross federal debt when he started his term was $19.5 trillion, meaning that the policy implemented during his four years in office increased the federal debt by 43 percent. Trump’s strong response to the COVID-19 emergency was not unusual compared to spending in past emergency situations, but the unfunded tax cuts and continued government spending strongly conflicted with his party’s conservative roots.

Joe Biden took office in 2021 and spent an additional $2.1 trillion through the American Rescue Plan to help the economy recover as soon as possible from the COVID-19 pandemic. As a result of all this spending, the stock market quickly turned from what many thought would be a sustained bear market to a bull market that has persisted through the date of this article. Retirees and the media applauded the recovery, but the potential implications of the added debt on long-term stock market performance was seldom discussed. On top of the $2.1 trillion spent on COVID relief, it is estimated that the laws and executive orders Biden has signed to date will add an additional $2.2 trillion to the national debt over the ten-year period following his inauguration.

On top of all the unfunded spending by Trump and Biden, Social Security, Medicare, and Medicaid continue to be more expensive and there has been no reform around these government programs. In 2023, the budget deficit was $1.7 trillion with total outlays of $6.1 trillion and total revenues of $4.4 trillion.

From 2001 to 2024, federal debt increased by $27.4 trillion from $5.6 trillion to $33.0 trillion. On an inflation adjusted basis, this was an increase of 238.9 percent.

Today

The evolution of our economy over the past 75 years has brought us to where we are today: $35.8 trillion of federal debt ($28 trillion is publicly held) and soon to be 23 consecutive years of budget deficits. While the president’s agenda is a key contributor to whether the government runs a budget deficit or surplus in any given year, it is a little more complicated because there are overlapping impacts between presidential terms. For example, George W. Bush’s response to the Great Recession had lasting effects on the budget for the ten years that followed his term in office. Likewise, the tax cuts implemented by Ronald Reagan did not just expire on day one of George H.W. Bush’s presidency. This means that we must look for inflection points to understand how we landed where we are today.

The first inflection point in the data we analyzed above was Eisenhower’s presidency from 1953 to 1961 when there was a clear goal to achieve a balanced budget each year. This mentality sustained for the next 20 years, but the economy faltered through the 1970s leading to our second inflection point. When Reagan took office in 1981, his agenda was boldly different than the six presidents that preceded him. The economy recovered by pretty much every metric used to evaluate economic strength, but the consequence was a tripling of federal debt. Interest owed on Reagan’s debt would make it exponentially harder to achieve a balanced budget in the years to come.

The third inflection point was born out of the challenges that the country faced during George W. Bush’s presidency from the dot-com bubble bursting to 9-11 to the Great Recession. All of these events resulted in significant government spending. On top of this, an aging baby boomer generation caused Social Security payments to skyrocket and the three administrations following the Bush administration failed to reign in spending.

The snowball of spending continues to roll downhill, and interest payments continue to rise. Interest payments make up 2.4 percent of GDP today compared to 1.3 percent ten years ago. Despite no clear path as to how we will pay for government programs such as Social Security, Medicare, and Medicaid beyond the next 10 to 20 years, there has been no reform around these government programs. On top of this, populist rhetoric dominates the news cycle, leading the current presidential candidates to focus on extremely short-term economic policy such as cutting taxes on tips, adding price controls, canceling personal debts, and endless tariffs on both our foreign allies and adversaries. All the while there is no attention given to the future consequences of our decisions beyond the next four years. Politicians running for office have an incentive to care most about the short-term because that is the period of time they are evaluated on. We as the American people are responsible for keeping the focus on the future wellbeing of the country. As either the generations that will be living in that future, parents who are raising these generations, or grandparents who care deeply about these generations, this problem is not only for young people to care about.

So yes, there are conflicting motivates related to the time horizon that we care to see economic growth over, just like there are different companies, industries, and economic metrics that we each care most about. But the way that we choose to fund growth should not be a source of controversy because the common goal of seeking prosperity for future generations incentivizes all of us to care about the future of our country.

You can formulate whatever opinion you want about potential solutions, but the first step is to acknowledge the problem and the fact that we all (should) care. Slashing the government budget to zero is not in the best interest of our country and is not possible at this point based on the current state of Social Security and interest payments on already existent debt. The solution does not inherently start from a partisan place, but we need to all agree to:

1. Understand how proposed government policy will be funded
2. Weigh the long-term costs of proposed government policy against the short-term benefits (or vice versa)

Much like personal or business debt, it will take creative solutions to generate new revenue streams that can be used to pay down our debt. We all can think of examples of businesses and people that we know who have been overtaken by debt. Bankruptcy laws in the United States give these people a second chance to promote risk-taking and innovation in our country. But a country going bankrupt is not the same as an individual. Just look at the bankrupted nations of the past. We should be much more risk-averse when it comes to the potential bankruptcy of our nation.

We need to change how we talk about economic policy. I am not voting for the economy if I choose a candidate that refuses to acknowledge the consequences of funding growth with debt.?

I welcome any questions, comments, or alternative examples in the comments section below.

Sources:

“Economic Downturn and Legacy of Bush Policies Continue to Drive Large Deficits.” Kathy Ruffing and Joel Friedman. Center on Budget and Policy Priorities, February 2013.

“George H. W. Bush: Domestic Affairs.” Stephen Knott. UVA Miller Center.

“Gerald Ford: Domestic Affairs.” John Robert Greene. UVA Miller Center.

“How Eisenhower and Congressional Democrats Balanced a Budget.” Rudolph G. Penner. Tax Policy Center, December 2017.

“How Much Did President Trump Add to the Debt?” Committee for a Responsible Federal Budget, January 2024.

“Obama's Fiscal Legacy: A Comprehensive Overview of Spending, Taxes, and Deficits.” Brian Riedl. Manhattan Institute, October 2017.

“Populist economics blare forth from Harris, Trump campaigns.” Tobias Burns. The Hill, August 2024.

“Reaganomics: Economic Policy and the Reagan Revolution.” Ronald Reagan Presidential Foundation & Institute.

“The Federal Budget in Fiscal Year 2023.” Congressional Budget Office, March 2024.

“Trump and Biden: The National Debt.” Committee for a Responsible Federal Budget, June 2024.