From: jwh@citi.umich.edu (Jim Howe)
Subject: Re: All deficits are not created equal.
Date: Mon, 05 Oct 92 14:20:57 EDT
Organization: IFS Project, University of Michigan
Reply-To: jwh@citi.umich.edu

In article <1992Oct5.165241.850@aio.jsc.nasa.gov>, walker@superboy.jsc.nasa.gov (Doug Walker) writes:
|> 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:
|> |> >
|> |> > 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.
|> 

I will agree that the analogy isn't perfect.  The concept is that the
larger your economy, the higher debt level you can have and not 
adversely affect the economy.  A larger economy yields greater 
revenue and has more capital available for the purchase of government
bonds, without depriving the private sector of needed capital.  There
is some evidence to suggest that financing by debt vs. financing by
taxes yields very little difference in the long run.  Don't get me
wrong, I don't like the deficts and I don't like the additional debt.
However, I feel that the greater problem is the amount of government
intrusion in the economy and private lives of its citizens that is
signified by the level of spending we currently 'enjoy'.

|> |> 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.  [...]
|> |> 
|> 	While I can't say that I dont care about what Japan is doing to
|> 	their childrens economic future I do care about ours.
|> 
|>    [...]
|>
|> 	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.
|> 

Actually the problem isn't the debt at all, its all the unfunded liabilities
we are currently generating.  The debt figure doesn't take into account
items like future Social Security payouts, federal pensions, etc.

|> 
|> |> 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.

Which studies would those be?  I believe that raising taxes hurts
incentives and will result in a more sluggish economy.  A slow
economy produces less revenue than a growing economy.  I would
prefer that spending be frozen at current levels (perhaps even
increasing by the amount of inflation) and let the tax receipts
from increased growth reduce the deficit.  I don't believe the
deficit warrants the panic were seeing and therefore I don't think
it requires implementation of 'rash' programs.

|> 
|> 	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.
|> 

Agreed.


James W. Howe                  internet: jwh@citi.umich.edu
University of Michigan             uucp: uunet!mailrus!citi.umich.edu!jwh
Ann Arbor, MI   48103-4943         
Newsgroups: talk.politics.misc