The US Economy and the Incredible Shrinking Budget Deficit

by Bill Sweet

The most important asset that the United States has is our incredibly productive economy. Our ability to produce and innovate has served this country so very well for our entire history, but especially during the period from about halfway through World War II until today.

When I was a young cadet in the ROTC program at RPI, my senior thesis argued that the reason that the allies won in 1945 was due to our economic strength, which ultimately led to strategic military victory. The thinking was heavily influenced by Richard Overy's book "Why The Allies Won," which posits that victory was far from inevitable, yet economic production was the ultimate difference between the Allies and the Axis.

This is by no means a controversial argument, but I think it is an important one with consequences that continue to today. The Germans possessed far superior technology and equipment, as well as superior leadership. As a future Armor officer, I was surprised to learn that Rommel basically handed the Americans and British their asses in North Africa several years prior to Normandy, which still stung in the eyes of Patton and Bradley as they were preparing to invade France. The Panzer IV, Panther, and Tiger tanks were several grades above their American counterparts, and ran circles around us.

Belton Cooper writes in his book about his experience while a member of the 3rd Armored Division, and referencing the American M4 Sherman tank, titles his book "Death Traps." He writes that it took coordination actions of about 4-5 US tanks and tank destroyers to neutralize one Panzer/Tiger. With acrimony, Cooper begins his book showing how the Americans had the ability to create and mass produce a tank that could technologically equal the German models, but chose not too because it would be too expensive. Hence, the Sherman was essentially an easily-repaired piece of junk. The excellent M26 Pershing didn't enter the theater until late in the war.

But Cooper also points out that the American's ability to produce - for his situation, tracks, engines, and other repair parts - was fantastic compared to the Germans on the front in 1945. A King Tiger tank busting a track was likely a death sentence, while the Americans were able to maintain, repair, and fuel their vehicles with relative ease. With time and innovation eventually the tide was swung on the Western front.

Leaving 1944 for the more peaceful times of 2013, we now have a situation where the economy again has roared to the rescue. This time our foe is the American budget crisis, and "crushing" federal debt. Today the Treasury Department reported that the 2013 deficit declined a whopping 38% from the prior year from $1.1 trillion to $680 billion.
Chart by Scott Grannis 

The difference is due to a combination of vastly increasing tax revenues (due to a healthier economy) while government spending has actually been slowly but steadily declining.

Scott Grannis in Calfornia has been covering this issue for about two years now at his blog Calafia Beach Pundit. I highly recommend reading Scott since he has some really great insights as to what is going on in the economy.

During the economic crisis and the period immediately following, there were several voices in politics and the media trying to show that the federal debt and deficit were the real culprits, and that we'd be able to innovate and get back to the old days if we'd only get the debt under control. I don't really have an issue with this line of thinking, but I believe that the best avenue to getting debt under control is economic growth. Thus, sacrificing the economy (jobs, production) to reduce federal debt is not a feasible solution.

The conclusion that economic growth is the solution to government debt seem to be playing itself out right now. As the economy expands, the deficit shrinks. Regardless of how you feel about the current leadership in Washington, federal spending has been flat or actually decreasing slightly since about 2009. Just like the great war, the American economy is here for the rescue.

This is all good news for our country, and those of us who work and live here. Let's keep up the good work.