Foreign Debt: The Overlooked Downside to the Reagan Era

The NYT had a front page article discussing Senator John McCain's views on economic policy. At one point it notes his strong support for Reagan's economic policies. The article then points out two major downsides to the economic legacy of the Reagan years, the stagnation of middle class living standards and the large increase in the government's debt. The article should have included in this list the large trade deficits of the Reagan years. The country went from a net international creditor in the Reagan years to a net international debtor, with the shift towards an international debtor position exceeding 17 percent of GDP in the Reagan years, the equivalent of almost $2.5 trillion dollars in today's economy, or $8,000 of additional foreign debt for every person in the country. This rise in foreign indebtedness will have more impact on future living standards than the government debt incurred in the Reagan era. The article also refers to a list of ineffective programs cited by the Bush administration, which is described as comprising 10 percent of the budget. The 10 percent figure presumably refers to domestic discretionary spending, which is currently just over $570 billion, about 20 percent of the total budget.

--Dean Baker