President Lyndon B. Johnson signs the Medicare Bill at the Harry S. Truman Library, 1965.
Harry S. Truman Library an indexing formula, which was not corrected until 1977.
By the mid-1970s, most major entitlement programs that are in place today were well established. By the 1980s, mounting costs already weighed heavily on the federal budget. To address the nation’ s deteriorating finances, the last two decades of the 20th century were relatively light on program expansions. Unfortunately, politicians were also insufficiently aggressive on cost containment— even after considering the brief federal budget surpluses in the late 1990s. Spending on entitlement programs grew less rapidly, but still expanded from roughly 9 % of GDP in 1980 to roughly 10 % in 1999.
Laying the Final Straws
On March 23, 2010, President Barack Obama signed the Affordable Care Act( ACA) into law. The legislation fell short of the Democratic party’ s long-standing goal of creating a national healthcare program. Political resistance forced Democrats to settle for expanded coverage and subsidies. The ACA was the last major entitlement program expansion in the 2000s. For the remainder of the 2010s, persistent fiscal deficits, which substantially increased in the aftermath of the Global Financial Crisis( GFC), had become too worrisome. But the 2020s would make the problem considerably worse.
In March 2020, the COVID-19 virus metastasized into a global pandemic. During and immediately after the crisis, the United States passed several fiscal stimulus packages, which added approximately $ 5 trillion in federal spending. Federal deficits for the five fiscal years ending September 2024 ballooned to an average of nearly $ 2.2 trillion per year, adding a total of $ 10.8 trillion to the national debt. Making matters even worse, massive fiscal and monetary stimulus stoked inflationary pressures, which fueled higher interest rates across the entire yield curve. In 2025, interest payments on the public debt are expected to be nearly $ 1 trillion, exceeding the entire defense budget. Analysis by financial historian Niall Ferguson identified this as a worrisome inflection point because, in the past, it had preceded the decline of many empires. In combination, these developments sent a clear signal that the debt reckoning of the United States had arrived.
Debt Reckoning and the Challenge of Worthiness
“ You will perceive, Sir, I have neither flattered the state nor encouraged high expectations. I have thought it my duty to exhibit things as they are, not as they ought to be.”
— Alexander Hamilton
26 FINANCIAL HISTORY | Spring 2025 | www. MoAF. org