From: walker@superboy.jsc.nasa.gov (Doug Walker)
Subject: Re: All deficits are not created equal.
Reply-To: walker@superboy.jsc.nasa.gov
Organization: NASA Johnson Space Center
Date: Mon, 5 Oct 1992 16:52:41 GMT

In article <Hp3-g8B@engin.umich.edu>, jwh@citi.umich.edu (Jim Howe) writes:
|> In article <1992Oct3.133846.9484@aio.jsc.nasa.gov>, walker@superman.jsc.nasa.gov (Doug Walker) writes:
|> |> In article <1992Oct2.235319.4749@u.washington.edu> sieferme@milton.u.washington.edu (Eric Sieferman) writes:
|> |> >[...]
|> |> >
|> |> >The context of my quotation about the deficit was that
|> |> >of HRP's severe plans to eliminate the federal budget deficit.
|> |> >My point was that the deficit as it now stands is not 
|> |> >as disastrous as HRP's plans to end it.
|> |> >
|> |> >There is nothing inherently wrong with a deficit; it
|> |> >depends upon how the deficit is funded and what the
|> |> >money is spent on.
|> |> >
|> |> >[...]
|> |>
|> |> Well, unless you can find me some references, or something more
|> |> substantial to back up your statements I don't think you have many valid
|> |> points.  Curing the deficit, actually not just the deficit but the DEBT,
|> |> may not fix the economy.  I agree they are seperate issues.  But they
|> |> BOTH need to be addressed in a way which shows a course of action which
|> |> will work,IMHO.
|> |> 
|> 
|> There are several issues related to the deficit and debt that are rarely
|> discussed, and yet are very important.  The first is level of debt.
|> Debt by itself is not a problem, it is the amount of debt relative
|> to your income that can create a problem.  If you earn $20,000/year,
|> it would probably be unwise to purchase a $400,000 house.  However,
|> if you earn $200,000, the mortgage on the $400,000 house isn't so bad.
|> For the U.S. the important thing is what is the ratio of debt to GNP.

    WRONG!  WRONG!  WRONG!

    GNP is not the governments income.  Governments income comes from
    taxes, tarrifs and the like.  Unless of course you find a 100% tax
    rate acceptable.

|> If you examine the debt/GNP percentage for the major industrialized
|> nations, you will find that the U.S. is *not* the leader, that distinction
|> goes to Japan (I believe).  Our debt/GNP percentage is not historically
|> out of line either.  In other words, our current debt situation is
|> not dramatically different than it has been in the past.  The nominal
|> numbers are higher, but our economy is also much larger.  Another
|> thing to remember about debt is that inflation erodes it.  If at
|> the end of year X you had a debt of 600,000,000, if inflation were
|> 10%, you could add 60,000,000 to the debt and not be any worse off.
|> Any amount less than 60,000,000 would actually result in a real
|> decrease in the debt owed.  Currently our inflation is nowhere near
|> 10% (thank god) but the concept remains.
|> 
	While I can't say that I dont care about what Japan is doing to
	their childrens economic future I do care about ours.

	Anyway, that sounds real nice but lets look at the numbers.

	debt 4,000,000,000,000
	inflation 5% 
	=======================
	20,000,000,000

	Now inflation is not really running at 5% but even if it were we
	could only add 20 billion to the debt per year for what you are
	suggesting.  We are currently adding 300 BILLION per year (last
	year, even more this year).  So what you say makes sense if
	thats what was happening.

	It is NOT the debt that is the problem it is the rate of growth
	of the debt (deficit).

	Again this is not our problem but it will be our childrens
	problem.

|> As far as the deficit is concerned, you need to remember that the
|> deficit is only the difference between receipts and expenditures.
|> No adjustments are made for the type of expenditures.  Expenditures
|> on capital investments are reasonable things to take loans out to
|> do.  It probably isn't reasonable to take out a loan for non-investment
|> expenditures.  When an individual purchases a house, they generally
|> don't think about the full purchase price, they worry about the mortgage
|> payment.  Under the government defict accounting procedure, a person
|> with a $200,000 income who purchases a $400,000 house has run a
|> $200,000 deficit in the year the house was purchased.  This is a stupid
|> way to do accounting.
|> 
	Agreed, but it wouldn't make much diffrence since tha single
	largest item in the budget is interest on the debt.  After that
	comes Social Security and entitlements. So you are mabey talking
	about 10% of the budget.

|> The main point of all this is to show that the 'deficit' and 'debt'
|> are not the bogeymen that most politicians make them out to be.

	True, words are words and the concepts are valid.  I am
	personally agains a all encompassing Balanced Budget Amendment.
	There are times that deficit spending is the only way.
	But,again, it is the way these things are currently being used
	that bothers me.

|> As long as the deficit is not monetized, the impact on the economy
|> is minimal, at least at current levels.  Does this mean we shouldn't
|> do something about it?  No, it just means that it would be foolish
|> to ruin the economy in order to solve a 'problem' that really isn't
|> as bad as people would like to think.  Perot's proposal is the most
|> idiodic.  Many of his ideas would simply kill economic growth, and
|> in turn reduce revenues available to the government.  Many of his ideas
|> would make the economy worse, and would therefore result in lower
|> tax revenues, leading to bigger deficits (unless spending were truely
|> cut).
|> 
   The studies I have seen mentioned have stated about the opposiute of
   this.
|> 
|> James W. Howe                  internet: jwh@citi.umich.edu
|> University of Michigan             uucp: uunet!mailrus!citi.umich.edu!jwh
|> Ann Arbor, MI   48103-4943         
|> 

	I wish to thank you for a real discussion of the issues not just
	name-calling or whining.

	This is what this confrence should be about.

	Thank you.

Doug

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