White House Burning

White House Burning (2012) by Simon Johnson and James Kwak is a book of varying quality that covers US government debt through history and provides a solution for the current debt problems.

The sections in the book about the history of US debt are fascinating. Few people today think about how debt was dealt with in the early days of the Republic. A large number of Americans
wanted to default or print money and avoid raising taxes on the debt incurred in the war of Independence. Also after the Civil War debt repayments were again a major issue. But economic growth and slight tax rises covered most of these repayments.

The current US debt problem is the major focus of the book. The authors describe how under Reagan peacetime debts expanded and when George Bush Senior attempted to reduce these deficits radical Republicans led by Newt Gringrich and Grover Norquist campaigned against balancing the budget and shifted the Republican Party. Under the Clinton administration compromises were reached that balanced the budget before George Bush II became President and heeded the lesson from his father and cut US taxes despite the fact that without creative accounting these measures would lead to budget deficits.

Bush’s wars and general expansion of the US military budget and his increase in drug prescription benefits and the subsequent US financial crisis then lead to a massive expansion in US debt. The authors describe the financial crisis as avoidable despite being familiar with Reinhart and Rogoff’s ‘This Time is Different’ .

The book then describes how with some fairly modest tax rises the US budget could be balanced and the debt brought slowly down. This section is weaker. There is less comparison with other countries than is desirable and the authors simply put up a centre-left wish list for how to balance the budget.

The lack of much mention of how sovereign debt is a problem in most developed countries now is a serious omission. The US is different in that it is easier there to balance the budget and the US can borrow in their own currency but still the international problem with debt is significant.

Overall though the book is a valuable contribution to discussions about US debt and is somewhat comforting in that it reveals how rancorous discussions of debt are nothing new and after 200 years of them the US will probably manage the latest bout as well.

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