Almost 600 years ago, the Forbidden City of the Ming Dynasty rose from the earth in a vast expanse of vermillion and gold, its 9,999 rooms a testament to the Ming’s limitless wealth. The empire’s treasury overflowed with silver from its trade with Spain and Japan, funding projects of pharaonic scale.
When the Yongle Emperor moved the capital north to Beijing, he built an entire new city, re-dredging the Jing-Hang Canal across half a continent to feed it, as if rearranging geography itself were a mere accounting detail.
But wealth, as the Ming would discover, is less a mountain than a river — powerful in flow but in constant motion.
By the 17th century, the dynasty’s spending had become a torrent: endless expenditure on imperial luxury, measureless armies marching against innumerable threats. The bureaucrats in charge of the imperial finances responded by raising taxes and printing paper money, until the population rebelled and inflation rendered the notes nearly worthless.
When Li Zicheng’s rebel armies approached Beijing in 1644, there wasn’t enough money left to pay for a defense. The last Ming emperor hanged himself on Coal Hill — a final act of desperation in a city of empty coffers and worthless paper.
The United States is not the Ming Dynasty — yet. We remain the world’s most dynamic economy, most innovative business culture and most efficient financial system.
This is reflected in the growing wealth of our people: 15 years ago, the gross domestic products of Europe and of the U.S. were roughly equal, at around $14 trillion. Today, Europe’s GDP is just over $15 trillion, while that of the U.S. is nearing $30 trillion.
But like the Ming, we have for too long been mistaking vast wealth for limitless wealth. Rich as we are, we are spending much more than we make.
Since 2009, our income has nearly doubled, but our debt has increased by almost six times, and our debt-to-GDP ratio is nearly 100%. The respected Penn Wharton Budget Model projects that our debt-to-GDP ratio will exceed 175% within 20 years.
Fortunately, it’s not too late to make a course correction. We have been here before — at the end of World War II — and managed through it.
It’s important to understand how we did it, however — because the most common current prescriptions likely won’t work.
Most politicians want us to address our debt burden by either cutting spending or raising taxes. Fiscal responsibility is important, of course, and efforts to control our spending will matter.
But that’s not a complete solution, because the size of the needed spending cuts or tax increases are just too high to be politically practicable — they could be as much as $3.4 trillion per year.
So why am I so hopeful that something can be done? Because when we did it before, we recognized there are two ways to make a ratio smaller: You can shrink the numerator (by cutting spending or raising taxes) — or you can grow the denominator.
After World War II, the Eisenhower administration spent eight years trying to pay the debt down with punishing tax rates (as high as 92%) and restrained spending, yet the debt actually grew. The debt-to-GDP ratio did fall moderately, but because the economy grew, not because of high taxes.
So the Kennedy administration focused on what was working, implementing a significant tax cut to grow the economy even faster. As a result, GDP growth doubled in the mid-1960s, and within 10 years the debt-to-GDP ratio had fallen to 31%.
Growing the denominator was more effective in addressing our debt position, and it did so by making Americans richer, not taxing them harder or imposing unneeded austerity.
Our tax rates today are much lower than they were 60 years ago, but instead we hobble our economy with a regulatory burden that would have been unimaginable in 1960.
When President John F. Kennedy took office, the Code of Federal Regulations contained about 22,000 pages. Today, that total is around 190,000 pages, and this doesn’t include the innumerable volumes of guidance, interpretation, precedent and practice that restrict economic growth.
Relieving this burden can improve the productive power of the American economy, just as relieving the tax burden of the 1950s accelerated growth in the 1960s. Growing the denominator is a politically practicable and historically proven approach to handling our debt burden.
The annals of history are littered with the husks of empires — like the Ming — that lost control of their finances, and thus of their fate. We do not need to be among them, provided we learn the lessons of history.
Randal Quarles is chairman and co-founder of The Cynosure Group and a former vice chairman of the Federal Reserve System.
This story appears in the January/February 2025 issue of Deseret Magazine. Learn more about how to subscribe.