Arms, Revenue, and Entitlements: U.S. Deficits in the Cold War, 1945-1991

199 Pages·2020·0.926 MB·English

by  William Mannen

Arms, Revenue, and Entitlements

Arms, Revenue, and Entitlements
U.S. Deficits in the Cold War, 1945–1991
William Mannen
LEXINGTONBOOKS
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BritishLibraryCataloguinginPublicationInformationAvailable
LibraryofCongressCataloging-in-PublicationData
Names:Mannen,William,1986–author.
Title:Arms,revenue,andentitlements:U.S.deficitsintheColdWar,1945–1991/WilliamMannen.
Description:Lanham:LexingtonBooks,2020.|Includesbibliographicalreferencesandindex.|
Summary:“Arms,Revenue,andEntitlements:U.S.DeficitsintheColdWar,1945-1991ex-
ploreshowdefense,tax,andentitlementpoliciescausedtheU.S.governmenttobecomedeficit
normativeduringtheColdWarera,arguingthatonlyacomprehensiveprogramcanreinin
deficitsinthetwenty-firstcentury”—Providedbypublisher.
Identifiers:LCCN2019056198(print)|LCCN2019056199(ebook)|ISBN9781793607096(cloth)|
ISBN9781793607102(epub)
Subjects:LCSH:Budgetdeficits—UnitedStates—History—20thcentury.|Finance,Public—United
States—History—1933-|Fiscalpolicy—UnitedStates—History—20thcentury.|United
States—ArmedForces—Appropriationsandexpenditures.|Worldpolitics—1945-1989.
Classification:LCCHJ2051.M3662020(print)|LCCHJ2051(ebook)|DDC336.3/4097309045—
dc23
LCrecordavailableathttps://lccn.loc.gov/2019056198
LCebookrecordavailableathttps://lccn.loc.gov/2019056199
TMThepaperusedinthispublicationmeetstheminimumrequirementsofAmerican
NationalStandardforInformationSciencesPermanenceofPaperforPrintedLibrary
Materials,ANSI/NISOZ39.48-1992.
Contents
1 FromtheSurplustotheDeficitNormativeState 1
2 AusterityAbandoned:Truman,1945–1953 13
3 AusterityRetried:Eisenhower,1953–1961 49
4 IdealismandOverreach:KennedyandJohnson,1961–1969 75
5 AdaptingtoLimits:Nixon,Ford,andCarter,1969–1981 115
6 DeficitHorizon:ReaganandBush,1981–1991 147
7 OverstretchintheTwenty-FirstCentury 163
Bibliography 179
Index 185
AbouttheAuthor 191
v

Chapter One
From the Surplus to the Deficit
Normative State
ThelongruntrendsintheratioofdebttoGDPthroughmostofU.S.history
show the pattern of rising debt during wartime and economic contractions
followed by stabilization in debt levels during peacetime expansions. Yet
today the federal debt assumes an unstoppable upward trajectory unprece-
dented in the annals of American public finance. In its extended baseline
projections,theCongressionalBudgetOffice(CBO)predictsthattheratioof
debt to GDP will top 144% by 2049.1 The federal budget now invariably
produces deficits, which drives this debt. The last time the government gen-
erated a surplus occurred in FY 2001. The budget thereafter returned to
deficitamidwarandfinancialcrisis.Yeteventhefoursurplusesachievedin
the late 1990s and very early 2000s only offered a reprieve from what had
alreadybecomedeficitnormality.
Risingdebtlevelsoverthelongrun,triggeredbynearpermanentdeficits,
must be recognized as harmful for both economic and institutional reasons,
even if deficits should not be considered harmful per se such as during
downturns.Astandardjustificationforbalancingthebudgetinthetwentieth
centurycenteredonthethreatthatunrestraineddeficitswouldproduceinfla-
tion,andindeedthe“GreatInflation”ofthe1960sand1970saroseatatime
of rising government spending, in fact during a protracted war in Vietnam.
This anti-inflationary justification may not be as germane today with the
Federal Reserve struggling to hit its 2% inflation target. But the danger of
rampant future inflation cannot be automatically discounted. What is more,
the danger of rising government debt crowding out private investment and
reducingoutputbearsgreaterrelevanceintoday’seconomynowthatinterest
income accrued from Treasurys are increasingly diverted into foreign coun-
tries.
1
2 Chapter1
Theinstitutionaljustificationsforreiningindeficitsareequallypowerful.
Faced with constantly rising debt levels, the federal government will be
forced into allocating more and more of its revenue into net interest pay-
ments (adjusted for interest income earned from government trust funds),
hampering effective governance. In the past, net interest as a percentage of
total outlays spiked whenever government spending grew, but it receded
again with a subsequent decline in spending. This future stabilization in net
interestwillnotoccurintheeventofcontinuallyrisingdebtlevels.TheCBO
projectsnetinterestpaymentstorisefrom9%oftotaloutlaysin2019to20%
by 2049, by which point servicing net interest will cost more than total
discretionaryspending.2
The long run trends in the growth of debt should not obscure the role
played by deficits in more immediate terms. Debt accumulates to the extent
of deficits generated in a given fiscal year, and multiple factors, including
events abroad and political dynamics at home, affect the generation of such
deficitsatspecificpointsintime.Whateverthefactorsbehindit,debtcontin-
uestoriseasthegovernmentregularlysustainsdeficitsyearuponfiscalyear,
aninvariabilitythatisattheheartofthedeficitnormativestate.
A situational perspective focuses on deficits as they are incurred in each
fiscal year and the factors compelling these deficits. The budget and appro-
priations process inevitably occurs within a specific context shaped both by
national security concerns and domestic political imperatives. Under a pro-
cessfirstestablishedwiththeBudgetandAccountingActof1921,thepresi-
dent must submit a budget request by the first Monday in February for
estimatedspendinglevelsinthefollowingfiscalyear.Thefiscalyearusedto
run from July 1 to June 30 until it was changed to an October 1–September
30 time frame starting in 1976. The legislation mandating this change also
createdtheHouseandSenateBudgetCommittees,whichdesignatespending
levels for the two Appropriations Committees in each chamber. The Appro-
priationsCommitteesthendeterminespendinglevelsforthesubcommittees.
Congress ideally passes a series of twelve appropriations bills for the presi-
dent to sign, though in recent years it has heavily relied on expedients like
continuingresolutions,whichkeepthesamelevelofspendingintactfromthe
previousfiscalyear.Thisprocessdoesnotoccurinavoid.Realworldfactors
constantly impinge upon the budget. The transition to the deficit normative
state occurred because for various reasons the president and Congress made
taxandspendingdecisionsthatledtodeficits,andthesedeficitsbecameonly
moreandmoreroutine.
A surplus normative state existed in the 1800s because the budget regis-
tered more surpluses than deficits on an annual basis, and these surpluses
tendedto coincidewith economicexpansions. Thatisnot to say the govern-
ment never sustained a deficit or that national debt did not grow. Deficits
were unavoidable in wartime or in periods of financial and economic dis-