@Thomas,
I have complaints about your responses above much like those you made of mine (though with more merit in my opinion). You are selecting and omitting relevant facts in a way to serve the rather dismissive arguments you are making.
I reviewed the OMB tables you cited, and noted that, much as I asserted, our deficits soared from about 3% of GDP in 1940 to 30% of GDP in 1943, declining to 22% in 1945, 7.6% of GDP in 1946 and then mostly small surpluses through 1960. There was in fact substantial retirement of debt in those years, but also very high economic growth that was (we agree) the main force in eclipsing the accumulated debt. It is also a fact that the redemption of huge numbers of liberty stamps and small denomination war bonds that comprised often forced savings during the war provided cash fed the postwar growth in consumer demand. That aspect of the situation would, contrary to your blithe assumptions, have been very different if foreign sovereign entities held our debt.
There were indeed deficits, beginning with Roosevelt in 1932 - 4% of GDP in 1936, peaking at 5.9% in 1934, declining steadily to 0.5% in 1938, and slowly rising thru 1940. GDP was low and variable in those years and the annual deficits amounted to about $2.5 billion dollars - about 4% of the annual dollar deficits during the war years.
The essential point here is that your argument that we ran steady deficits during the 1930s as well as the war years and in some cases afterwards is literally true, but positively deceptive. You have simply obscured the fact that our national debt exploded during the war years as a result of the war effort, but the country quickly returned to mostly surplus and balance immediately after the war ended. We agree that explosive post war economic growth, fueled by pent up demand and the lack of external competition was the primary factor in reducing the relative significance of the accumulated debt - though substantial retirement did, in fact occur.
The situation we face today is profoundly different in two areas. (1) Our rising deficits are not associated with external forces that will operate for but a short period. They are structural, built in to the continuing operations of our government, and likely to be lasting if we don't address them. This is complicated by the fact of a so far persistent paralysis of our body politic in dealing with them - denial and political evasion on one side and sometimes shrill prophecies of doom on the other. The first casualty has been serious effort to deal with the problem. (2) Unlike the 1040s, we don't face a period of explosive economic growth, fueled by pentup economic demand and accumulated consumer savings, and unencumbered by foreign competition. Instead our current situation is the reverse in each area.
The situation in Greece is both similar and different - each in important areas. Like ours their debt crisis is the result of longstanding structural elements and public denial. Unlike ours they are constrained by the Euro, unable to inflate their currency and restrained drom default by their benefactor/creditors. Iceland, with its own currency, and Ireland, a Euro nation, both faced debt crises caused by banking collapses (as opposed to structural deficits). Iceland let the bank's (largely foreign) creditors take the hit and (in my view) is recovering nicely. Ireland chose to guarantee the bank debt and faces a period of austerity while it is paid off. Both countries will likely fare much better than Greece, in that the underlying cause of their crises has been dealt with. Meanwhile Greece has lost control of its financial affairs to its now surly and self-interested Euro zone "benefactors", and persists in its internal denial and inability to deal with the cause of the structural problem - no cure at all.\
Our current situation is like that of Greece in its structural elements (but perhaps with somewhat less fradulent accounting) and the associated public denial. I believe those (like the little weasel Krugman) who advocate that we try to borrow and spend our way out of such a continuing problem are, at best, blind to the significance of this point.
