Historical consequences of unsustainable federal spending

Unsustainable government spending has historically led to disastrous economic consequences. Photo: Public Domain

SAN JOSE, November 4, 2012 - If the 2012 presidential debates made any impact on citizens in the United States who are blessed with common sense, an apparent take away was the fact that similar arguments over the distressed economy and unsustainable national debt arose during the presidential debates of 2008. The issue of the economy took center stage as the major focal point of the campaign and U.S. foreign affairs took a back seat. Because the stock market crash of 2008 was an October surprise, fixing the economy became the most hotly contested issue between the two presidential candidates. But this year, an obvious irony is that the one responsible for increasing the national debt even more was now claiming he would do something to actually reduce it.

Compared to an American household, that seems a bit like an irresponsible spouse who has gone on such an extravagant spending binge that they have maxed out the family’s credit cards, only to turn around and claim that they will now be more careful with their spending habits. At that point, the actual damage to family finances was obliterated by the one who then claims he or she can fix it. It is no wonder that one of the major underlying causes for divorce in America is improper handling of family assets and financial disputes. It is not hard to comprehend the basic points of difference underlying the debates over the economy. One Party seriously believes in liberally spending as much of the tax-payers money as they can get away with, and the other Party appears to be a bit more conservative when it comes to spending other people’s money. However, both major parties today have perfected the ability to spend the tax dollars Americans provide to the federal government.

The recent contentious wrangling over federal spending and national debt limits will continue to be debated through formal political dialogue and over coffee conversations throughout the nation, but average Americans do not easily grasp the nuances of economics unless it involves missing overtime pay for hours worked over a holiday or similar more personal realities. The realm of economics also has its own inherent controversies and representative philosophies complete with diverse opinions as to how to get from economic disaster to sound fiscal growth and economic stability. What is not obvious to many American citizens is that the current administration is depending on economic stabilization based upon borrowing more money, printing more money, and taxing the only people left with any money. And at the same time the Obama administration is intent on spending more money. A paradox? Totally!

During the 2008 presidential election debates, Barack Obama led the American people to believe that the Democrat Party could get government spending under control and get the economy moving. During the campaign, then Senator Obama chastised President George W. Bush as being unpatriotic for the incredible amount of spending during his eight years as the chief executive. But in January of 2009, the Democrats were readying another humungous bill of spending that added essentially $787 billion to the $400 billion that the Bush admini8stration had saved and had transferred to the incoming Obama administration from the $800 billion bailout bill. In case anyone was counting, that added over a trillion dollars in new debt to the federal deficit. But, that was only part of the Democrat spending spree.

Once Obama took charge, and in spite of attempts by supporters to juggle the books, fair estimates indicate that the Obama administration has thus far outspent the Bush administration by more than one trillion dollars each year! So much for cutting spending. The Party message that Obama and his people are trying to feed the American people is that now the Democrats this time around will get real serious about reducing the federal spending and cutting the deficit. And the major media outlets are providing the means by which their favored Party disseminates this illusion of logic to the people. Unfortunately, the major media have seemingly devolved into mere propaganda organs.

When president Obama was on the campaign trail in 2008, he pledged to cut the deficit in half by the end of his term. Where were the media watchdogs during his administration to challenge the reality that the Democrats tripled the debt. It didn’t take them even 4 years to do so. If that is Obama’s way of trying to control government spending, an intelligent observer could ask the obvious: what would happen if Obama and the Democats were not trying to cut spending. Actually, it now would appear that if President Obama and his economic gurus cut the deficit, they may appear as geniuses because they have increased the federal spending so much, that any cuts in future spending or reduction in the enormous deficit would be welcomed by most. Unfortunately, there is a cost for such unsustainable government spending and there is historical precedent which has only created economic hardship and turmoil.

In an eerie parallel, there was another period in U.S. history where one political party won control of the Presidency and both houses of Congress and interpreted the election with confidence that the American people had provided them with a “mandate” for change. They used that perception to aggressively pass whatever legislation the dominant Party desired. Their underlying plans involved manipulating the nation’s money supply as well as unprecedented federal spending. Their party’s legislation led to serious inflation and the destabilization of American’s currency, and ultimately a devastating economic depression. This occurred under the Republican administration of Benjamin Harrison after he defeated then President Grover Cleveland by an electoral margin of 233 to 168. In that election, the Republican Party maintained a substantial margin of control in the U.S. Senate and took control of the House of Representatives.

The Republicans in 1888, interpreted their victory as a significant mandate as did the Democrats in 2008. Both Party’s in their respective times, chose to pursue a course of spending unparalleled in previous administrations. At this time, in the 2012 election year, the Democrat Party is adamant that they have “seen the light” and will finally focus upon cutting down on spending. But, it is a dangerous time to trust that the political party that spent so much of the taxpayer’s money before, will change their way of operating at this point. American’s need to realize that such unsustainable spending has had disastrous consequences in the past. The difference now is that Democrats believe they have a green light to spend (though they won’t admit it in an election year) and the perception exists that Republicans are whining over nothing.

Under Grover Cleveland’s previous term in office, the nation enjoyed a fairly healthy period of economic prosperity. Cleveland, the Democrat, was a fiscal conservative (maybe one of the last of his kind in the Democrat Party) and felt anxious about leaving a surplus of close to $100 million in the U.S. Treasury that his administration had accrued. He sincerely believed that the money honestly belonged to the people, and if it continued to languish in Washington, Congress would surely find some way to spend it. Sadly, this is a given in today’s political environment. Cleveland’s worst fears came true and turned into a nightmare. Harrison and the Republican Congress initiated a spending spree that proved unprecedented up to that time.

Not much can stop a Party that controls both houses of Congress and the White House. During Harrison’s term, a third party, the People’s Party (commonly known as the Populists) rose to challenge both major political parties as Americans who had voted for Harrison woke up as higher prices for goods and commodities across the country angered millions. High tariffs on imported goods, which had provided for much of the government surplus under Cleveland, caused higher prices. Democrats challenged Republican spending as well. Critics of Harrison’s administration and the Congress dubbed the Republican lawmakers the “Billion Dollar Congress” because for the first time in America’s history, the government spent over $1 billion a year.

The high spending administration definitely eliminated Cleveland’s surplus, and the Billion Dollar Congress depleted the gold reserves in the Treasury to buy less valuable silver via the Sherman Silver Purchase Act. It was an effort to shift away from gold as a standard for backing the nation’s currency. Many historians believe that this was a primary factor in the destabilization of U.S. currency at that time. This aggressive tampering with the economy backfired on the Republicans as Harrison and his party lost by an overwhelming margin in 1892. After Cleveland was elected again, he was left holding a ticking economic time bomb. Like President Obama, he chose to take on the debt and felt confident to deal with the economic turbulence that had already commenced before being elected.

Unfortunately, the real losers in the flurries of unprecedented federal spending and tinkering with the money supply are the American people. In March of 1893, Cleveland once again took the oath of office, but in May, the Panic of 1893 ripped through the country. The stock market crashed. Many railroads and businesses failed. People freaked out and subsequent runs on the banks caused several bank failures. Unemployment rose to staggering levels. The ensuing economic depression dragged on for four years.

If the depressing economic scenario seems similar to the one that America has been going through since 2008, it is because the current Obama administration and the Democrats seem to have found a way to replicate some things Republicans did back in 1888. History reveals that politicians, who tamper with the economy for personal or political gain, often generate adverse and sometimes catastrophic results. Regardless of who wins the presidential election of 2012, the president and Congress will have their work cut out for them as the economy is much worse now than it was four years ago.


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Dennis Jamison
Dennis Jamison
Dennis Jamison reinvented his life after working for a multi-billion dollar division of Johnson & Johnson for several years. Now semi-retired, he is an adjunct faculty member  at West Valley College in California.  He also currently writes a column on history and one on American freedom for the Communities at the Washington Times.

 

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