How was the decision not to pay down the U.S. debt made post WW2?

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Was it Truman's intention to begin paying down the debt after WW2? If so, what happened to prevent it? And was there any way that the public would have known that the debt was not to be whittled down to the same extent that had always been attempted previously? Was it the result of an announced policy, or simply something that was never gotten around to?


To begin with, the premise of this question is somewhat mistaken.  As was true in earlier wars, WW II did cause a large expansion of federal government debt both absolutely and relative to GDP.  Indeed, the debt/GDP ratio reached about 94 percent at the end of WW II.  Following the war, however, the burden of debt fell to less than 26 percent of GDP by the mid-1970s.  It has risen since then, but that is a different story.


Obviously, an important factor in this declining ratio was the growth of GDP, but the declining relative size of the federal debt hardly suggests a policy to "not whittle down the debt."  Indeed, dating back to the early history of the country, it has been recognized that long-term government securities represent an important foundation of a sound and robust financial system and providing markets with an adequate supply of bonds is beneficial.  Moreover, most economists believe that the correct measure of the debt burden is not its absolute value but rather its relationship the national income, and the ratios reached by the 1970s would be considered quite sound.


An excellent overview of the long-run fiscal history of the United States can be found in John J. Wallis, "American Government Finance in the Long Run: 1790 to 1990," Journal of Economic Perspectives 14, no. 1 (Winter 2000), pp. 61-82. (does not require an account)


It is true that the post-war era marked a significant turning point in the size of the federal government and its expenditures.  In particular, as a result of the Korean War and the Cold War, military expenditures rose to unprecedented levels in the 1950s and 1960s.  An interesting perspective on this shift as well as the way in which public opinion was influenced by political leadership can be found in Robert Higgs, "The Cold War Economy: Opportunity Costs, Ideology and the Politics of Crisis," Explorations in Economic History 31 (1994), pp. 283-312. (account required)


Answered by:
Dr. Joshua Rosenbloom
Department Chair
Last updated on October 23, 2018