Can Obama Pull a Jackson?

It was the eight of January, 1835 when officials from across the country gathered in Washington DC for a meeting presided by President Andrew Jackson when it was officially announced the United States had paid all debts to other nations for the first time in history. Not only was the country out of the hole but for the time being, we were running a national surplus.

Right from the start debt was a choice for the United States. Following the Revolutionary War, as we were founded we had the simple option to default and forget about wartime loans. All the bonds and grants to the government would be forgotten but at the cost our credit, economic stability and credibility as a state.

So the US decided to take on its debt which for the same reasons as today, wasn’t very easy to finance. The debt wasn’t expanding at quite the rate it does today but neither was it shrinking. Then along came Andrew Jackson who as a land speculator in the West had gone in the red after a deal gone bad. His experience led to a campaign oriented around economic stability and would go on to enter office despising banks and considering debt a moral failure of sorts.

And so he went to work almost immediately, and shut down the National Bank. He then began selling US assets primarily in through federally held land in the West. Further, he ruthlessly blocked spending bills, vetoing expenditure of nearly any form. Though some questioned the integrity of his practices, there no doubt that it worked. Money poured into our coffers as spending simultaneously shrunk and the miraculous result was the erasure of our remaining $58 million debt within 6 years.

 And so it was on the eight of January, 1835 when Jackson realized he had the wonderful new dilemma of what to do with his extra reserves now. There was no National Bank anymore so he decided to divide the money and grant it to states by population. And sure enough that’s when the good times ended. The states weren’t quite as cautious as Mister Jackson and began a land purchasing bubble not hugely unlike our housing bubble, which soon grew out of control. Jackson noticed this and stepped in but immediately realized he was too late. By requiring land to be purchased in gold or silver, we saw a crash causing a recession that would drag on for six years. And just like that, with the pop of a bubble we said goodbye to a year long debt-free US.

Even when accounting for inflation, the debt Jackson tackled pales in comparison to the burden we carry today. Last Wednesday, President Obama proposed a combination of long-term spending cuts particularly in national defense, tax hikes and changes to welfare programs. Personally, with my limited economic knowledge, I believe each of these is exactly what we may need. Spending as our dear old President Jackson demonstrated is the obvious and possibly most important point. Tax increases (audacious considering elections are approaching) may very well be a fact that we are just going to have to learn to live with if we ever plan on lowering our deficit. Lastly, welfare programs at the moment have already been identified as facing huge sustainability issues particularly in the case of Social Security so reform is necessary in any case.

                 If these measures were to take effect and be as successful as planned, the national debt would be reduced by $4 trillion in the next 12 years. This goal is ambitious to say the least especially considering years past, but offers the kind of hope and worthy cause America needs at the moment to handle a task as daunting as this. So though for now the debt clock continues ticking, the beginning of our journey to the end just may be in sight.