From: cthorne@magnus.acs.ohio-state.edu (Charles E Thorne)
Subject: Re: Re Will 92 Be Like 76?
Organization: The Ohio State University
Date: Thu, 15 Oct 1992 13:16:40 GMT

In article <1992Oct14.202739.18088@fs7.ece.cmu.edu> dmw@ece.cmu.edu writes:

>In the early years of the Carter administration, the Fed reduced real interest
>rates until they were negative.  Naturally this caused a tremendous increase
>in the money supply since it paid to borrow money, and in turn caused a
>spurt in inflation.  This couldn't last, and the Fed under Volker sharply
>increased interest rates to kill the inflation, causing a recession in the
>process. 

>The obvious difference now is that investors still remember, hence the steep
>bond yield curve.  A second obvious difference is that foreign trade is a
>much higher percentage of the GNP than it was in the late 70s, and the
>deficit is financed to large degree by foreign borrowing.  Given that even
>most liberals give at least lip-service to deficit reduction, I don't think
>there will be any major new programs passed without corresponding sources of
>revenue, or transfers from other budget categories (read DoD).

>One exception might be national health insurance, since it can be argued that
>it is just transfering the health care administration from companies to the
>government, with the companies and individuals still paying for it through
>taxes.  A second exception would be "investment" spending, such as on
>education and infrastructure.  In the short term it would be inflationary,
>but the long term it would be deflationary, if in fact the spending went to
>activities that increased national productivity, as opposed to pork barrels.

Several comments with respect to the above:

	1.  Everyone seems to thing that the Military Budget is a big
pie in the sky ready to be spent.  For one thing, it's a very small percentage
of the GNP and even if it were to be totally eliminated, it wouldn't really
allow increased spending.  There other aspect of the defense budget is that
if it were totally abolished the companies who employ workers to make military
hardware, and the military expense to support personnel would cause an enormous
recession if they were eliminated (one problem in closing bases and cutting
defense is the State's which benefit don't want their's cut).

	2. Again, wrt Health Care spending.  Admittedly many companies who
now pay for employees insurance would like to transfer that to the government.
Unfortunately, no one seriously thinks this would be an improvement.  The
companies now pay employees health insurance (which is tax deductible for
the employees) and they have a great amount of bargaining power with the
insurance companies and health care providers.  If they turned it over to
the government they would lose this control (as well as the control of who
received the benefits).  Since the government now spends much more per person
on health care than private industry, costs would rise enormously (which isn't
in the budget).  The only two solutions possible would be for the government
to hire the health care workers and provide "free" health care to everyone
as Britain does.  The health care industry won't buy this, nor will the
tax payers.  The Canadian process is also touted, but Canada saves money by
not providing many items which Americans aren't willing to do without.  This
solution is also not politically possible.

I agree that schools and infrastructure should get increases, but just spending
more money on schools without increasing quality won't help anyone (except
teachers will make more money).