25 for 25. Jackson pays off the debt (1835)

Andrew Jackson wasn't the first person to conflate the economics of a household with the economics of a nation. Nor was he the last. But he was the first president to act on that conflation in a meaningful way. He was also the last president to do so.

In his own life, Jackson found debt to be a burden and a trap. From young adulthood he had lived in the west, where chronic shortages of money caused people to circulate promissory notes—promises to pay. When the promisers failed to pay, the consequences cascaded down upon those who had accepted the notes. They were unable to pay their own debts and risked losing property as a result. Jackson was caught in such crises, and determined to get out of debt and stay out.

He assumed the same logic applied to the nation as a whole. And when he became president in 1829, he bent his efforts to digging the United States out of the debt it had incurred during and after the Revolutionary War and failed to pay off. He succeeded, proudly announcing in 1835 that the American government, for the first time in its history, was no longer in the red. It owed nothing to anyone.

This created a new problem. For decades taxes had been set at a level to service the debt as well as fund other government activities. With no debt to service, taxes produced an annual surplus. Cutting taxes wasn't as appealing then as it would become later, for the principal form of taxes was tariffs, which besides producing revenue protected American industries from import competition. Jackson began by dividing the surplus among the states, which directly and indirectly returned it to the people.

The extra money caused a bubble in real estate prices. Bubbles eventually burst, and when this one did it triggered the financial panic of 1837. The panic produced a depression that caused government revenues to plunge and the federal debt to reappear. By the time the depression ended, the country was deeper in debt than when Jackson entered office. The United States then went to war against Mexico, and the war did what wars always do: increase the federal debt. Never since has the United States come even close to paying off the post-Jackson debt.

This is partly for lack of political will. Especially after tariffs gave way to the income tax as the main source of government revenue, cutting taxes has been more politically appealing than cutting spending.

But it's also because governments have a more sophisticated understanding of economics than Jackson possessed. A nation is not like a household when it comes to debt. If a household takes on debt, it owes money to someone outside the household. When a nation takes on debt, it typically owes money to itself. Debtors and creditors are both parts of the nation. (Some debt is owed to foreigners, but in the early days this portion was small.) One American's debt is another American's credit—credit that funds economic activity that can benefit the nation as a whole. Eliminating debt risks starving the country of credit.

As with everything else, too much debt can be a bad thing. In government accounts, interest on the debt can crowd out other spending. And debt divides the nation into debtors and creditors. Everyone is a debtor by virtue of being obligated to pay the government debt through taxes. Only a few people are creditors. These are usually the rich. On net, then, debt tends to aggravate inequality.

Jackson's successors learned the lesson of the panic of 1837: Don't bother to pay off the debt. But they learned it too well. We live at a time when not only is the debt growing, but so are the annual increments to the debt, the budget deficits. And no longer are foreign holdings of the debt negligible.

Jackson didn't do things by half measures. Yet if a president today could summon a modest fraction of Jackson's opposition to government debt—not all of it, just a bit—the nation would be the better.