"Debt/GDP in the U.S. was 114% after WWI, declined steadily to under 30% by late 1970's. Starting with Reagan tax cuts in '81, it rose to between 45 and 50%."
The numbers depend on which measure of debt one uses. According to OECD figures that use "general government gross public debt," the debt/GDP ratio rose in the US from 37.0% in 1980 to 62.2% in 1995, an increase of 68%.
Max: "I'd say the rise in debt/GDP was narrowly political--the determination of the Right to shrink government by sabotaging the revenue system--as opposed to a figment of deep political-economy."
This sounds plausible for the US, until you look at the rest of the advanced countries. Except for the UK (which may be cooking the books by counting oil revenues or sales of state assets as receipts), all of the large and middle-sized advanced economies likewise experienced massive increases in the gov't. debt/GDP ratio during the same period. Indeed, the percentage rise in the US was substantially less than average. So I find it hard to chalk this up to the politics in a particular country. Here are the percentage changes, between 1980 and 1995, for the largest 12 OECD countries, ranked by size:
US 68 Japan 53 Germany 95 France 94 UK 8 Italy 114 Canada 125 Spain 243 Netherlands 68 Belgium 70 Sweden 80 Austria 89
The (simple) percentage increase was 91%, and 99% if the UK is excluded.
I've begun to do a bit of decomposition analysis for the US. The story about the right-wing gutting the tax base has some truth here, but the matter is more complex, partly because this story focuses only on the numerator of the debt/GDP ratio. What also occurs suddenly in the early 80s is a decline in the growth of (nominal) GDP, mostly due to disinflation. In the 1970s, despite the economic crisis, debt/GDP didn't rise (actually it fell a bit) because of the double-digit inflation that was pumping up GDP. The effective interest rate on government debt was thus substantially below the growth rate of GDP. Beginning in the early 1980s, however, this gap was eliminated.
Andrew Kliman