Few citizens are aware that from the end of World War II through President Carter’s last budget year, we were outgrowing the national debt. Debt went from the highest ever level in 1946 to the lowest since before the Great Depression during (fiscal) FY1981 – 127.9 down to 32.5 percent of gross domestic product (GDP, measure of the total economy).

The national debt is on track to reach 111.5 percent of GDP this budget year (FY2013) and exceed that of 1946 next year, even with pending tax increases.

What happened?

In a word, ‘Reaganomics.’ Ronald Reagan’s ‘greed is good’/supply-side (‘trickle-down’) economics era alluding to Arthur Laffer’s deceptive ‘little curve’ – give tax breaks to business and the wealthy, they will invest in economy, jobs will increase, tax collections will rise, and everyone benefits. Nice theory; too bad it’s utterly fallacious.

Supply-side rationale has and is being used continuously by politicians at all levels of government. Federal, state, and local tax structures have been eviscerated. Failure of this approach is attributable to the power of vertically integrated economic behemoths (corporations) spanning multiple political jurisdictions and nations – leviathans transcending the authority of our politically fragmented federal system of government.

Our ‘fearless leaders’ forgot about the fallout from out-sourcing, off-shoring, and tax havens. We live with the results of debt bequeathed by simultaneous war and tax cuts for business and the wealthy. Too few pay taxes even on earnings in this country.

Since FY1981 massive debt accumulated with: 1) continuous war/preparation for war; 2) privatization of war and national security using procurement contracts; 3) a voluntary [mercenary?] military; 4) tax cuts, tax expenditures, abatements, TIFs, other loopholes; 5) redefinition of income (what counts and what doesn’t) for multijurisdictional/multinational corporations and the very wealthy; and 6) massive waste of our national resources.

All fomented by an incestuous relationship between the military, corporate elites, and Congress with supply-side economics promoted by politicians at all levels of government. Presciently President Eisenhower warned against the military-industrial complex.

Spending for war and its preparation has a much lower beneficent effect (multiplier effect) on the economy than spending for domestic services and infrastructure. So much is spent overseas and for costly weapons systems that are blown up, outdated, or never used by the military; costly voluntary armed forces; the Defense Department and eight allied departments and agencies that spend for what we euphemistically call national security – constituting 43 to 50 percent of the federal budget. National security accounts for virtually all of the national debt since and including World War II.

During the post-World War II era, in constant dollars (taking out inflation), the economy increased at almost exactly the same rate as revenue collected, 3.23 and 3.33 percent annually. Spending rose only 2.69 percent on average. The national debt declined 4.14 percent annually as a proportion of GDP. This pattern changed dramatically beginning with the presidency of Ronald Reagan.

Despite small tax increases under presidents George H.W. Bush and William J. Clinton, during the Reagan/George W. Bush era, average annual increases in revenue collection (i.e., taxes) dropped three-fifths to 1.33 percent since FY1981. Spending increases stayed at almost the same level, 2.43 percent – over four-fifths above the annual increase in revenue. GDP declined more than one-third to 2.10 percent. The national debt exploded to rising 6.01 percent annually; increasing 4.01 percent as percent of GDP – a total reversal from the post-war era.

Federal, state, and local governments have given away half their ability to collect revenue to corporations and the super-rich since FY1981. The incidence of taxes on business declined more than one-third. Those derived from personal income increased by one-fourth as very wealthy individuals were relieved of most of their obligation to pay taxes.

The plus-and-minus, year-to-year dollar carryover of GDP, revenues collected, and expenditures importantly influences fiscal policy for current years and data lagged from one to five years. Analyzing carryover covering the last seven decades is very revealing.

For annually current data, 1946 through FY2011, federal revenues and expenditures explain 70 percent of the variation in GDP. A careful analysis of current and lagged data indicate federal finances contribute 26 percent more to the economy than the economy contributes to government. Government provides necessary infrastructure for both private and public sectors.

Since World War II, federal expenditures averaged 19.5 percent of GDP, revenues 17.5 percent; state-local another 14 to 17 percent depending on the year. At one-third of the economy, government is the most important employer, the most important economic sector, and stimulator of the private economy.

Moreover, federal tax/revenue collection is far more closely and positively associated (correlated) with the economy than expenditures, whether or not those ups-and-downs are caused by changes in taxes or a prior change in GDP. Tax/revenue collection is 1.9 times more positively related to the economy than expenditure patterns for current year’s carryover and data lagged one through five years.

Three decades of supply-side/“trickle-down” approach indicate it’s not economics, it’s an ideology – one promoted by those who benefit therefrom and politicians who line their election and re-election coffers as well as their retirement income (as lobbyists post-Congress) with bribes from corporate elites.

History violates more than one of our theories about the interaction of government and the economy. History destroys the ‘supply-side’ approach and Arthur Laffer’s [laughable?] little curve. It’s way past time to bury this concept along with continuous war – the reasons we became the world’s premier ‘first-world debtor nation.’ Paraphrasing President Reagan, ‘Government is not the problem; it’s the solution.’