After World War II, the federal debt – including debt purchased by the Social Security Trust Fund – hit nearly 122 percent of gross domestic product. State and municipal debt back then was minimal. By the time Dwight Eisenhower was elected president six years later, the federal government’s debt had dipped to about three-fourths of GDP.
The key factor in the rapid drop in government debt, said Harvard University economist Kenneth Rogoff, was fast economic growth. Spurred by a young labor force, world-leading manufacturers, high personal savings rates, a pent-up demand for consumer goods after years of war and the Depression, and a bout of inflation, the economy grew 57 percent in six years. Thanks to sharp postwar cuts in defense outlays, federal government spending also tumbled for a couple of years.
But today the U.S. economy is in a polar opposite condition. The labor force is aging, U.S. manufacturing often lags behind Asian and European rivals, households are in hock up to their eyeballs, and consumer appetite for goods is tepid. In addition, inflation is tame and government spending locked into entitlement programs and debt service that will be hard or impossible to alter.
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