If you been wondering, just what has made us grow, a generation hard as stone. My father’s father, may God rest his soul. He taught me something you should know. You put your shoulder to the wheel, you put your nose to the grindstone, you work your fingers straight to the bone. I won’t, won’t let ‘em leave us, a generation. I won’t, won’t let ‘em leave us, don’t leave us. So begins the song Greatest Generation, written by Phil Labonte and released in 2015 by the heavy metal band All That Remains.
I am visiting my home town, and was thinking about my father and my grandfather, and the generations that have come before me. And like a typical economist, I thought to myself, did we pay back those generations for their efforts in fighting World War II. Yeah economists think about strange stuff sometimes. I was noting that the national debt reached $20 trillion dollars over the last couple of months, and thought to myself – Self, how much of that debt was from World War II?
Now first, I do not think we can ever repay the debt to the Greatest Generation, and particularly to those who fought in World War II. We would not have the society that we have today without these people. For with all of the problems we have, I cannot imagine what our world would be like had the dictatorships of the 1930s and 1940s won that conflict. The whole world would be like North Korea.
But that said, I took a look at the National Debt and how it has grown since the Second World War. Since that time, the total debt has risen and fallen but has generally increased. So in reality, we have never paid off the debt which stood at $271 billion at the end of World War II (technically mid-1946 for the purpose of this exercise). Were that debt to be rolled over and paid at a prevailing Federal interest rate (in this case I used the 3 month note yield since it was an easy time series to find), the total World War II debt would equal $4.4 trillion today. Talk about the power of compound interest.
So of our current national debt, about one-fifth, (22.5 percent) is from World War II. But what about the recent run-up in debt?
Well, starting in 2008, the national debt stood at about $9 trillion. Taking that debt at the same interest rates as the WWII analysis, debt would equal $10.5 trillion today. So in reality, over $9 trillion (or twice the debt incurred from WW II) has been added to the nation’s credit card. In just 9 years.
Think of it. One fifth of our total national debt is from WW II, 32 percent of our accumulated debt was from Korea, Vietnam, the Great Society, the Cold War, etc. and 46 percent of the accumulated debt was for – well I really don’t know what it was for, or where $9 billion in borrowed money went over the past 9 years. It sure did not go into infrastructure, investment or economic growth. In fact, the real economy has not grown at all over the past 9 years at all. GDP is up just about $4 trillion in nominal dollars, and debt is up $9 trillion. This has not been a weak economic cycle, it has literally been a 10 year long recession. We have borrowed from the future not to build, not to defeat tyranny, not to even go to the moon, but rather to consume stuff.
If our grandparents were the Greatest Generation, this must surely be the Profligate Generation. With all that the economy has suffered over the past 9 years, it is obvious that we have not put our shoulder to the wheel, our nose to the grindstone, or worked our fingers straight to the bone. This is not something that even tax cuts or deregulation will fix. It is something that we will be living with for generations – and that is a very scary prospect. Happy Halloween.