Simon Johnson and James Kwak. White Housing Burning: The Founding Fathers, Our National Debt, and Why It Matters To You. Pantheon Books, 2012, pp. 352, $26.95 The two constants in the upcoming 2012 general election likely will be an inordinate amount of negative campaigning and vigorous disagreement about how to best foster economic growth. Implicit [...]
Simon Johnson and James Kwak. White Housing Burning: The Founding Fathers, Our National Debt, and Why It Matters To You. Pantheon Books, 2012, pp. 352, $26.95
The two constants in the upcoming 2012 general election likely will be an inordinate amount of negative campaigning and vigorous disagreement about how to best foster economic growth. Implicit in any discussion about the nation’s economic woes is the national debt, which as of May 7, 2012, was $15,671,202,480,642.98. While the political center-left has highlighted the perils of rising consumer and student debt, the Tea Party movement and political libertarians have ensured that the perils of this country’s rising national debt remain in the public consciousness. But what should be done about the country’s debt? Should we enter into an age of austerity in which public spending at the federal level is significantly curtailed and once-cherished safety net programs such as Social Security and Medicare are quasi-privatized? How did we get ourselves into debt to begin with? At a more theoretical level, should we be asking ourselves whether debt is always such a bad thing for a country?
In White House Burning, Simon Johnson (Massachusetts Institute of Technology) and James Kwak (University of Connecticut School of Law)* argue that the debate over the national debt comes down to how Americans want to respond to risk, either on their own volition, or through government-run insurance programs. The same is true for the deficit. “The great deficit debate,” write the authors, “is about how much risk people should bear themselves and how much they should pool with each other via the government.” The authors contend that it is indeed possible to maintain a sustainable level of debt and simultaneously have the federal government continue to play its role as an insurer against risk. Indeed, in chapter seven, they delineate what they believe to be the best method for achieving this goal. While most conservatives would likely not agree with their recommendation that the Bush tax cuts expire, others surely will appreciate their preference that tax expenditures, including the mortgage interest deduction, be eliminated or reduced.
While the direct policy sections of White House Burning are somewhat dry reading and do not break substantially new ground, the book’s earlier chapters do merit attention, particularly by those readers interested in economic history. In their Introduction, they discuss how the country’s fiscal weakness during the War of 1812 led to the burning of the White House by British troops in 1814, “the low point of the war, a moment of national humiliation that remains an iconic image in U.S. history” and, one should note, accounts for the title of the book. The problem during the War of 1812, contend the authors, was that Great Britain had money, while Congress opted for “higher spending without higher taxes.” Today, the approaching fiscal crisis comes not from the threat of a literal land invasion, but by a greying population and rising health care costs.
In Chapter 1, entitled “Immortal Credit,” Johnson and Kwak provide an overview of how the United States dealt with its national debt prior to the end of the gold standard in the Nixon era. Not surprisingly, Alexander Hamilton, America’s first Treasury Secretary, and the man responsible for enacting the country’s earliest fiscal policies, plays an important role. In the book’s second chapter, “End of Gold,” the authors posit that the changing relationship between gold and money over the past three centuries has had important consequences for the national debt. The breakdown of the Bretton Woods system for international finance in the early 1970s, led to a growth of American national indebtedness. “Under the Bretton Woods system, the capacity of the world to buy American bonds was limited by American gold reserves; today it is limited only by market demand, which has turned out to be much more forgiving.” Indeed, international investors still consider Treasury bonds to be safe assets. But, as the authors aptly warn, markets could turn against the United States should the world begin to doubt Washington’s ability to manage the dollar effectively.
In conclusion, White House Burning is a useful primer for those readers interested in learning about the national debt and what drives it. Although not as compelling as the authors’ previous work, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, in which they argued that the close ties between Washington and Wall Street are not healthy for the American economy and polity, this most recent publication is still worth reading. This is particularly true for readers interested in how the federal government acts as an insurer against risk for a large segment of the population. Whether their work will have any impact on the gridlock in Washington remains yet to be seen.
Jon Lewis (c) 2012
* I received my J.D. from the University of Connecticut School of Law prior to Professor Kwak taking the position at the law school.