"The only time in our history when the debt has been higher than this was the end of World War II."
David Cote on Monday, February 11th, 2013 in a speech during a “Fix the Debt” press event
Millionaire Honeywell CEO David Cote compares today's U.S. debt to post-World War II
One day before President Barack Obama delivered his "State of the Union" address, David Cote, president of Honeywell International and a member of the president’s debt commission, shared his own thoughts. And Cote’s outlook wasn’t quite as rosy.
Cote, a New Hampshire native, returned to the Granite State Monday, Feb. 11, in a forum hosted by "Fix the Debt," a nonpartisan campaign to address the nation’s fiscal challenges.
"The recession created a huge issue for us," Cote said during the event, held at Saint Anselm College in Manchester.
"The only time in our history when the debt has been higher than this was the end of World War II," he said. "When you think about it that way, it puts into perspective the difficulty of what we're dealing with."
Now, PolitiFact has checked a lot of claims about the debt and whether the majority of the debt is Obama’s fault. Those typically land on the false end of the Truth-o-Meter. New Hampshire’s junior Senator Kelly Ayotte compared the amount of debt under Obama to the amount accrued under George Bush and got more favorable results.
But here, Cote wasn’t lobbing the blame grenade.
In hard dollars, there’s little question that the debt is higher than ever before. On Feb.11, the day of the event, the debt stood at $16.49 trillion-- nearly $10 trillion more than 2002 and almost four times as much as ten years before that, according to Treasury records.
However, economists rarely use hard dollars to measure the size of the debt. Rather, they compare the debt total to the country’s gross domestic product -- the value of all goods and services produced in the U.S. in a year -- to get a better picture of the true scale of the debt.
In his remarks, Cote referenced the debt to GDP ratio several times and it was clear he wasn’t talking about raw dollars.
Currently, the $16 trillion debt makes up about 73 percent of GDP, Cote said, citing the nonpartisan Congressional Budget Office to support his claim.
So, does that number rate as the second highest in history? We decided to check the records.
As part of its annual Long-Term Budget Outlook, CBO officials list the debt-to-GDP ratio going back to the 1790, the year after the Constitution took effect.
That year, the nation held a debt of $71 million, which reflected about 30 percent of GDP, according to budget office records.
By way of quick history lesson,"The U.S. was born in debt," wrote Matt Phillips, a reporter for the Atlantic, wrote in a November article, "The Long Story of U.S. Debt, From 1790 to 2011, in 1 Little Chart.".
"Where did that debt come from?" Phillips asked. "Well, the Continental Congress, the rough equivalent of the Federal government in revolution-era America, lacked the power to tax. It first tried to pay for stuff by printing money. This currency, known as the Continental, collapsed."
The debt ratio rose and fell over the coming years, in line with the wars ongoing at the time.
During the Civil War, the ratio rose from 2 percent in 1860, the year before the war began, to 35 percent, a record at the time, in 1865, when the war came to an end.
"The public debt surged from about $65 million in 1860 to $2.76 billion in 1866," Phillips wrote, citing CBO figures. "The debt would never get below $900 million again."
And, nearly 60 years later, the debt ratio jumped once again during World War I, rising from 3 percent in 1916, the year before the United States entered the war, to 33 percent in 1919, when the war ended.
"Often during wartimes, you see both sides of the equation growing," John Harvey, a professor of economics at Texas Christian University, said this week.
"It’s a big increase in spending, without question. But, often, it’s a big increase in revenue, as well," said Harvey, who wrote an article, "Why Our Current National Debt is not the Largest in History," last year for Forbes magazine.
The debt ratio began to fall once again in the aftermath of World War I. But, in 1929, the stock market crash launched the Great Depression, which then led to increases in government spending under the New Deal, and the debt ratio rose sharply to 44 percent, a record at the time, in 1940.
From there, World War II led to unprecedented growth, both in national spending and debt accumulation. By the end of the war, the ratio rose to 106 percent in 1945 and 109 percent in 1946.
"American manufacturing made a killing (during the war), but the government debt to pay for everything was huge," Ron Haskins, a senior economic fellow with the Brookings Institution, wrote in an email to The Telegraph. "We paid more than our fair share of war costs as well as post-war costs (like the Marshall Plan)."
The debt ratio remained high in the years following the war -- higher than the current 73 percent ratio. By 1951, it dipped to 67 percent, and despite some peaks and valleys over the coming decades, it did not reach the 70 percent threshold again until 2012.
"This one isn’t really the wars. These two wars (in Iraq and Afghanistan) were actually pretty small," said Harvey, the TCU economics professor.
"More of it is because of the economy," he said. "When the economy is doing poorly, tax revenues go down because there aren’t as many jobs. At the same time, more people are qualifying for welfare and social assistance, so that drives up costs. … That’s what we’re seeing now."
In hard dollars, it’s not even close. The current $16.49 trillion debt is far larger than at any other point in U.S. history. But, the debt-to-GDP ratio tells a different story.
The current ratio, 73 percent, is among the nation’s highest. But, as Cote notes, it still has a ways to go to get to the 106 and 109 percent levels reached during and after World War II.
However, Cote was unspecific about comparing today’s debt to the exact end of World War II in August, 1945, or the era following the war. As noted, the debt remained higher for six years after the war than it is today.
We rate Cote’s claim Mostly True.
Published: Wednesday, February 20th, 2013 at 8:22 p.m.
David Cote, "Fix the Debt" forum in Manchester, N.H., February. 11, 2013
U.S. Department of the Treasury, The Debt to the Penny and Who Holds It, Accessed February 13, 2013
U.S. Department of the Treasury, Historical Debt Outstanding - Annual 2000-2012, January 16, 2013
U.S. Department of the Treasury, Historical Debt Outstanding - Annual 1950-1999, August 18, 2008
Congressional Budget Office, The 2012 Long-Term Budget Outlook, June 5, 2012
Congressional Budget Office, Federal Debt Held by the Public, 1790 to 2011, June 5, 2012
U.S. Department of the Treasury, Historical Debt Outstanding - Annual 1790-1849, June 28, 2012
The Atlantic, The Long Story of U.S. Debt, From 1790 to 2011, in 1 Little Chart, November 13, 2012
Forbes, Why Our Current National Debt is not the Largest in History, February 26, 2012
Interview with John Harvey, professor of economics at Texas Christian University, February 12, 2013
Email interview with Ron Haskins, senior economics fellow at the Brookings Institution, February 12, 2013
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