Deficits as Far as the Eye Can see

Since 1962 through 2020 and projected through 2022, the US has had a government deficit every year except during the Nixon years 1969 to 1973. 

The table shows revenues, outlays, deficits, and total government debt since 1962*. 

Including the Nixon presidential years (1969 to 1973) does little to affect the notion that the US government has yearly budget deficits.  From 1962 through today we have a string of annual government deficits sans the Nixon years. That's roughly six decades of deficits. 

An annual government deficit means the government spent more in that year than it received in tax revenues. So what? So what is that the government incurs a debt in each of those years. In order to spend $5.44 trillion in 2022 it raised taxes of $4.39 trillion. Obviously the revenues did not cover the whole amount of spending. What we call the national government deficit is the $1.154 trillion difference between spending and tax revenues. That's how much we had to borrow for just that one year. 

How does one spend more than they earn? Tuna knocks over 7/11s. The rest of us have to borrow. Thus a national deficit in 2022 means the government has to borrow $1.154 trillion in 2022. The amount of new debt that year gets added to the existing or old debt. Note that if you have a deficit in one year, you cannot pay down the existing accumulated debt by even one penny.

It is worth pointing out that when the government snaps up that $1.154 trillion in the credit markets, there is less money available for the you, me, and General Motors. Economics say we get "crowded out" by the government. The government has some very large elbows and the rest of us get less. Of course, we don't know that the game is on and so the act of the government and the rest of us trying to borrow all that money sends interest rates up. Between rising interest rates and crowding out, the private sector gets knocked around by those large government elbows. 

Looking at the next to last column (annual deficits) you notice that the debt (last column) had to grow every year -- except the years 1969  to 1973 when we had annual budget surpluses. The last column shows you the accumulated debt of the US government. It started at $248 million in 1962. It has grown and grown to over $24 trillion by 2022.  That's quite an increase. 

Again, you might say so what? After all, the government is not the Tuna and is not even Donald Trump or Bill Gates. You might imagine that the government does not have to pay its debts. No big deal. Have big and bigger debts. 

Well, it does have to pay. Those debts are evidenced by bonds issued. If you hold one of those bonds you fully expect the government to pay you annual interest and then the principal. Just because it is the government does not mean it does not have to pay its debts. The bigger the debt gets, the more concern we have that the government might not pay. 

That's where it gets sticky. If the debt gets too large and we worry the government might not pay, then that creates some problems. For example, if the government tries to sell bonds and we decide not to buy them, the market price of the bonds falls and the market rate of return rises. That influences other interest rates and pretty soon the rise in interest rates hurts borrowing and spending. Higher interest rates adversely affect the buying of houses, cars, and many other goods and services.

And that's not the whole story. You might note that the government controls the supply of money. The Fed can just crank out a bunch of $100 bills and buy those pesky bonds. There today, gone tomorrow, replaced by money. That helps to keep those interest rates down and the government slides on down the road with its huge debt. 

Well, that all works pretty well until all that liquid wealth -- the money -- burns a hole in our national pockets and we start spending like the Tuna at a Macy's Christmas sale... and that starts to bid up the prices of everything from tuna salad to a 42 ounce T-bone. 

It all sounds kind of cool until you realize that there is no reason to let the national debt grow and grow and grow. Grown-up congressmen are allowed to say no to additional spending. They can also raise taxes enough to cover the extra spending. Sadly, the ones we have had lately don't seem to have the sense or the stomach to do what's right. We should tell them to hit the road. 

*To economize on data points in the table, I omitted the years in between the years 1962 and 1972, 1972 and 1982, 1982 and 1992, 1992 and 2002, 2002 and 2112.