Writer for The Annual Report of the USA, and managing editor of The Harvard Political Review, Chris Danello highlights lessons learned from the Truman presidency on grappling with federal debt. A prescription for our own time?
When the Midwestern Democrat took office, the federal budget deficit was high and rising. The steep costs of dealing with an extraordinary economic calamity, as well the cost of overseas wars, had drained the treasury and pushed the national debt to unprecedented heights. Compounding the President's difficulties, the midterm elections had yielded an obstreperous crop apparently unwilling to compromise on any aspect of the budgetary process. Yet over his term, the growth of debt would reverse its course, and the President would become perhaps the most effective deficit reducer in the nation's history.
The above scenario may seem an aspiration for President Obama's administration, and an unrealistic one at that. Yet it also neatly illustrates the path of an unlikely hero to budget hawks: President Harry Truman. In his eight years in office, Truman managed to decrease America's debt to GDP ratio by nearly a third, and laid the groundwork for a fiscal consensus that brought debt from its highest real level in history to pre-war levels. As the United States embarks on debate over its dire debt outlook, then, it may be time to take a closer look the most budgetarily successful President of the past one hundred years.
At first glance the analogy seems strained. Truman's most apparent budgetary advantage was one that President Obama thankfully does not enjoy, namely the end of the Second World War. Indeed, when Truman took office, the military budget alone stood twice the entire expenditures of the entire government today, at least relative to the economy. Nonetheless, the story is more complicated than one might assume. Far from the eager beneficiary of demobilization, at least in fiscal terms, Truman resisted attempts for immediate discharge, fearing the "disintegration of our armed forces." Instead, the man from Independence highlighted the need to stop future sources of expenditures, rather than achieving transient once-off savings. To that end, the President cancelled several politically popular programs, notably the "supercarrier" USS United States. Though the decision sparked the so-called "revolt of the admirals," costing Truman public support, it also enabled substantial budgetary breathing-room. Truman's willingness to confront the sacred cows causing long-term spending growth remains a critical skill for policymakers today, though the debate has moved to health from defense.
Further, the Truman example illustrates how the executive and legislative can produce positive fiscal outcomes. The crucial legislative battle of the Missourian's first term was a one eerily familiar today: between congressional Republican plans for a substantial tax cut and Democratic hopes of retaining high levels of taxation to fund a national healthcare system. After the Republican landslide in 1946, however, the former was enacted and the latter rejected. To Congress's dismay, however, Truman refused to accede to their subsequent requests re-increase defense spending, citing declining tax revenue. As such, Truman recognized the crucial necessity of budgetary practice, namely the importance of living with one's choices. Should Congress extend the Bush tax cuts, then, a contemporary Truman would urge substantial cuts, particularly in the programs most desired by those for lower taxes.
Yet Truman also recognized austerity's limits. Indeed, the best-known budgetary accomplishment of the administration is the Marshall Plan, which committed the United States to $13 billion worth of European reconstruction, the equivalent of well over $100 billion today, and hardly a fiscally-conservative feature. Nonetheless, Truman made clear that budgets should still be willing to pay short-term expenditures to gain long-term savings, and particularly so in a time of tightened belts. As he would write in defense of his proposal, "the Marshall Plan [will cost] 16.5 billion. But you know in October and November of 1945 I cancelled 65 billion in appropriations...So I must do what I can." In this sense, Truman's willingness to look beyond the next election cycle boosted America's balance sheet.
The most important lesson of the Truman example may not be any proscription for governance, but rather proof of government's limits. For all Truman's efforts, the nominal value of the national debt declined only 10 percent over his term, and the bulk of deficit reduction made up by rapid economic growth. To be sure, the example of Harry Truman shows that prudent fiscal contraction and the willingness to make tough choices prove extremely successful at decreasing the short-term deficits, even during period of economic dislocation. Yet, as Truman also illustrates, until an economy begins to grow again, long-term debt reduction proves a substantially difficult task.