From: mykes@shell.portal.com (mike myke schwartz)
Subject: Re: National debt is not bad
Followup-To: talk.politics.misc,talk.politics.theory,alt.fan.rush-limbaugh
Organization: Portal Communications Company
X-Newsreader: TIN [version 1.1 PL7]
Date: Thu, 21 Jan 1993 05:07:18 GMT

Ted Frank (thf2@ellis.uchicago.edu) wrote:
: [lots snipped]
: In article <C149uI.60u@unix.portal.com> mykes@shell.portal.com (mike myke schwartz) writes:
: >Ted Frank (thf2@ellis.uchicago.edu) wrote:
: >: Not a single US debt holder has ever gone unpaid.
: >
: >Quite true, but at the expense of investment.  You see, in order to pay
: >off some of our debt, we are issuing new debt.  Instead of paying off
: >old debt, we chould be using that new debt to improve roads, the railway,
: >communications, defense, medical research, or whatever.
: 
: What do you think the old debt was used for?

Some portion of it went for debt payments.  Where does the government get
the difference between its income and expenses?  It finances the debt
payments and spends the money it would use for interest payments.  With
a balanced budget amendment, we'd be spending tax dollars for this kind
of thing instead of spending borrowed money.

: >A bad analogy, because that home-entertainment-system must be built by
: >someone.  That someone earns wages and buys other goods.  The system is
: >an asset that can be sold, and provides some value...  A better analogy
: >would be that the government lost some wages during the recession, and
: >we charged our "necessities" on the charge card.  We are certain to
: >be able to pay the payments, especially when we get a new job (economic
: >growth).
: 
: If we didn't have a trade deficit, I'd agree with you.  I probably still
: do with about 80-90% of that.

I see a global economy.  The trade defecit helps the Japanese (or whoever)
buy stuff from us (including T-Bills).
: 
: >: If we always had a balanced budget, the US would have ceased to exist
: >: fifty years ago.
: >
: >I disagree.  
: 
: So how would World War II have been funded?  Without a violation of
: the Fifth Amendment, mind you.
: 

Issuing bonds and defecit spending are not the same thing.

: >The government's big mistake was in contracting the money supply.  That
: >would explain why your loop worked...
: 
: Agreed to a certain extent.  But budget deficits in a welfare state are
: countercyclical, while government spending is directly correlated with
: GNP.  Insisting on a balanced budget, in good times and bad, would 
: exacerbate the business cycle.
: 

A balanced budget does not prevent the government from issuing bonds.

: >: Now, insisting on a reasonable deficit in bad times and on a surplus in
: >: good times, I would have much less objection to.
: >
: >A balanced budget gives us both!
: 
: How are you defining balanced budget?  Are you including safety net
: payments?  

Simply put, the government must pay for its expendatures with tax revenues.
This means that it can borrow money, but it must consider the debt payments
as part of the revenues.

For example, the government can issue bonds to build roads.  The payments
on those bonds (including principle) must be factored into the budget and
the budget balanced.  If it borrowed $4Trillion in one or two or three
lump sums and invested it, the possibilities are endless (roads, fiber,
space program, etc.).  But looking at the federal budget, the money was
borrowed and very little of it went for these things.  If the government
had to balance its budget, we'd likely have invested in things with a more
postive reward.  Ideally, if the government is going to borrow a huge
sum of money, I'd like the chance to vote on approving the bond measures :)

As for saftey net payments, I would suggest that the government spend last
year's revenues in the current year.  It might also be a good idea to consider
a longer term budget, which would dollar cost average out fluctuations in
GNP growth rates (recessions).

Lastly, I submit that you can borrow a huge amount of money, and yet save
a lot of money in the bank at the same time.  It all depends on your income.



: -- 
: ted frank                     | thf2@ellis.uchicago.edu 
: standard disclaimers          | void where prohibited
: the university of chicago law school, chicago, illinois 60637









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