Newsgroups: sci.econ
Subject: Re: The Deficit as a Retrospective Tax
From: demon@desire.wright.edu (Stupendous Man)
Date: 4 Sep 92 14:43:56 EST
Distribution: usa
Organization: Demonic Possesions, Inc.

In article <1992Sep4.033502.24861@aplcen.apl.jhu.edu>, baindur@aplcen.apl.jhu.edu (Satyen Baindur) writes:
> It has seemed to me that  this point of view is never 
> heard in the media, and I thought I'd voice it here, and hear 
> arguments against it. I'm  not a regular reader, so I don't know 
> if this  might have been beaten to death in some previous thread. 
> 
> The point of view is this : The deficit arose because of tax cuts 
> which were not accompanied by spending cuts. As I see it, the rich 

	Deficits are caused by spending too much, whether you cut taxes or not. 
Weight gain is caused by eating too much, whether you exercise or not.

> basically  said, no, you can't take this money away from us, as taxes, 
> you're going to have to pay to use it. So borrow it from us. If the 
> government, let us say, in a Democratic Administration now said,  
> heck no, that was a foolish thing to do, we don't owe you that money 
> which should have been taxes anyway, what happens ? The deficit 
> simply becomes a retrospective tax. So from the government's current 
> account, the obligation to pay interest on the debt vanishes. 

	Congress decided (and the presidents haven't objected too much) to
simply spend beyond their means.

> The government now has a smaller deficit to cover. If there are still 
> people ("investors") with the money sitting around to 'lend' to 
> the government, why can't the government simply say, sorry folks, 
> we know better what to do with your money than you do, and this money 
> is now ours ! That is, collect that idle money in taxes.

	The value of the dollar would plummet as everyone sold 100% of their US
holdings.

> Instead, the national debate regarding the deficit is structured around 
> arguments about how to pay down that debt, how to cut 'entitlements'
> and so on. Paying down the debt, under the present tax structure, 
> simply means sending more and more money earned by working people 
> to the rich people !

        How so?  The belief that "the rich" have lent money to the government
is erroneous.  Holders of US debt vary from foreign countries to Ma and Pa
Kettle and their US savings bonds.  Note also that US debt is still a
relatively small fraction of our total worth (something like $30 Trillion?).

> In other countries, the government meets deficits simply by printing 
> more money, this whole idea of the government becoming indebted to a few 
> of its own citizens ( or certainly citizens of other countries)
> does not exist, in this form. Just the idea that governments, having 
> agreed on certain spending priorities, and democratically so, would 
> then incur a debt obligation on behalf of all citizens to a few, is 
> difficult to rationalize.

        Printing money causes inflation.  While that may make the debt appear
easier to pay (because each dollar would be worth less), Mexico and the rest of
the Americas are good examples of what happens to the economy when that tactic
is tried.

        Forbes of August 17th has some very good interviews with the Mexican
President and finance minister.  As they confirm, sound fiscal policies are the
only way out of debt and inflation.  (Sound meaning largely supply-side :)

Brett                                                      
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Newsgroups: sci.econ