U.S. History of balanced budgets

For those who doubt the ability of Congress to balance the federal budget, consider:

The Civil War sent federal spending skyrocketing from around $70 million to more than $1 billion in 1865. Again, however, war was followed by a long period of retrenchment, as federal spending was held constant and the debt was paid down. Spending was roughly flat at about $300 million for two decades, 1870 to 1890. The budget was balanced every year from 1866 to 1893.

That’s from Chris Edwards at CATO, one of the reliably insightful and reasonable budget experts in Washington. Read Chris’s whole essay at National Review

7 responses to “U.S. History of balanced budgets

  1. I am always curious as to how budget figures for 19th Century america reflect property acquired from indians and redistributed to settlers. The Homestead Act was arguably one of the largest tax and spend programs in history. Also, many railroads were financed by grants of government land or extension of emminent domain authority.

    We tend to view the early history of the nation as an example of low taxes and little spending. The Iraqouis, Souix, Navahoe etc might feel differently about the land tax and the homesteaders certainly recived a valuable asset as part of the process. In kind revenue and expenditures may not show up in the accounting ledger but they are a form of tax and spend none the less

  2. Hi. Thanks for the interesting article. However, as I have noted before, since a lower deficit is equivalent to a reduction in private income, debt reduction should preferably occur only during “good times”.
    That is, lower deficits put more reliance on higher consumption, higher investment and higher net exports to
    offset the negative impact on the economy of lower deficits. If these sources of growth are declining or stagnant, then a lower deficit will just make economic conditions worse – undermining the objective of a thriving private sector.
    A long historical perspective is rare so this article is excellent in that regard. Over the period reviewed, the U.S. had depressions beginning in 1819, 1837, 1857, 1873, 1893 and 1929. To my point, Mr. Edwards failed to point out that all of these depressions, with no exceptions, were preceded by budget surpluses. That is, an important contributing cause of the depressions was the reduction in private sector incomes caused by the preceding persistent budget surpluses (public sector surplus = private sector deficit -holding the external sector constant. This in not theory – just double entry bookkeeping).
    Thus we need to be careful about the timing of deficit and
    debt reduction. Right now the economy is growing but
    only slowly. Therefore, unless I am missing something, at the moment, deficit reduction would seem to fall in the category of “be careful what you wish for”. Any comments more than welcome. Thanks.

    holding the external sector constant)in the private sector

  3. Excellent point. Budgets have been balanced before and they will be balanced again. Even here in Ireland where politicians are as dishonest and short sighted as America (if not more) we had balanced budgets for the decade before 2008.

  4. A bit more than 100 years ago, the average citizen paid over half of his taxes to local government, less than a third to the state and around 5% to the Feds. We had built the gretest nation in the world on such ratios.

  5. What you neglect to mention is, military spending was high during the Civil War, and during that period of balanced budgets military spending dropped drastically. However, non-military spending surged during that period of balanced budgets.

    Should that be our pattern?

  6. Charles D’s response covers the 19th century. In the 20th century the US had some 34 balanced budgets, all but one was ended by a recession. That one was during the Vietnam war. War tends to reduce the chance of balancing the budget.

    Also, I note the worst recessions of the 20th century, the Great Depression and the 2001 recession we never really recovered from, were preceded by the longest strings of balanced budgets.

  7. Mr Edwards neglected to mention that military spending surged during the Civil War. After the war military spending plunged, but non-military spending expanded. That pattern seems to hold to a certain extent after that, but I haven’t reviewed the numbers closely.

    Nor have I reviewed the numbers after 1930 as there has been no significant reduction in the debt after that year.

    Seems not only war, but constant preparation for war are not conducive to debt reduction.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s