White House Burning traces current debate over debt to nation’s roots

New book co-authored by MIT Sloan’s Simon Johnson seeks to trigger serious conversation about role and costs of government

White House Burning

CAMBRIDGE, Mass., April 3, 2012—The nation will mark the bicentennial of the War of 1812 with cannon salutes and other pomp, but the authors of a new book hope this important piece of American history will also help inform the very contemporary debate about the proper role of government—and how to pay for it.

“Adjusting for changing syntax and jargon, today’s conversations about fiscal policy are straight out of the run up to the War of 1812,” said MIT Sloan Professor of Entrepreneurship Simon Johnson, the book’s co-author. “In 1812, the majority of what was then called the Republican Party wanted war and also wanted to cut taxes and spending.” The result? An underfunded military and a nation unable to finance the war, leading to the British occupation of Washington and the title of the book by Johnson and co-author James Kwak: White House Burning: The Founding Fathers, Our National Debt and Why It Matters to You (Pantheon, to be released April 3, 2012).

Delving into history and economics, the heavily sourced book traces a long national balancing act between taxes and spending. It explains the causes and implications of America’s current level of debt and lays out the difference between deficit and debt. Though the book provides a menu of choices about how to reduce debt without undermining important social insurance programs, Johnson hopes it will serve a broader role. “The good news is that there are people on the right and left who do want to have a serious conversation about fiscal responsibility,” said Johnson, a former chief economist for the International Monetary Fund. “We hope this book helps get that going.”

Though the issues and context have changed, the fundamental question raised by the nation’s Founders remains, he said. “We can have interesting discussions about regulations and discretionary programs, but when it comes to the budget, the big deal is whether government should serve a basic and important social insurance function. If you want programs such as Medicare and Social Security, how are you going to pay for them? It’s simply not good policy to depend upon the Chinese to indefinitely finance our debt.”

White House Burning explains how for nearly two centuries, American fiscal policy generally adhered to the philosophy of Alexander Hamilton, the nation’s first Secretary of the Treasury. “Hamilton’s core principles—debt when you need it, taxes to service the debt, and fiscal responsibility as the prevailing ethos—served as the backbone of U.S. fiscal policy from 1790 through 1945, even as the world and the nature of government changed profoundly,” Johnson and Kwak write. They trace how social, political, economic, and fiscal changes since World War II—especially mistaken policies of the 1980s and 1990s—threw the nation off that set course.

“Our job in this book is to explain the hard realities and get the power structures behind them into the open,” said Johnson who, with Kwak, an associate professor at the University of Connecticut School of Law, co-authored the national best seller 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown (Pantheon Books, 2010). The two also cofounded The Baseline Scenario, a widely cited blog on economics and public policy. The release of White House Burning as the election season begins to peak is intentional, Johnson said. “Neither liberals nor conservatives have anything to lose from an informed debate about the size and scale of government,” he said.

That debate harkens back to the nation’s roots, but it must also reflect current and future realities, said Johnson. “This country has been built with a restrained but powerful government. It’s good to limit the powers of government, but it never crossed the founders’ minds that government would pay the health care of people living into their 90s. Do we want a lot of Americans who worked hard all their lives to now be left out in the cold? If the answer is no, then we get back to Hamilton’s fundamental principle that we must be able to pay for the things we want.”

Determined that the book be accurate, Kwak and Johnson hired fact checkers to comb through their manuscript. “We paid them to challenge us,” said Johnson. “We have tried very carefully to substantiate everything we say.”

It’s easy for politicians to invoke the interests of current and future generations in their claims and promises, but the book calls for informed choices based on hard reality. “Assuming that we want [our grandchildren] to be better off than we are, a large national debt is one thing we should worry about, but far from the only thing,” Johnson and Kwak write. “Simply invoking the interests of future generations does not provide easy answers to any of our fiscal policy questions. We should also worry about leaving them a productive economy and a healthy planet to live on, which means investing in the physical, environmental, and educational infrastructure that they will inherit.”

Johnson knows that debt is a dull topic, one most people would rather avoid. But by tying today’s fiscal and economic situation to the broader story of America, he hopes that White House Burning will help people appreciate and discuss such serious topics. Otherwise, he and Kwak warn in their book, “Our highly polarized political system is on the course set by the 1812 Congress: higher spending without higher taxes. This inability to make any fiscally responsible choice is how a dysfunctional political system could cause a true fiscal crisis—in one of the richest, most powerful nations in the history of the world.”