From: jwh@citi.umich.edu (Jim Howe)
Subject: Re: All deficits are not created equal.
Date: Thu, 08 Oct 92 10:11:52 EDT
Organization: IFS Project, University of Michigan
Reply-To: jwh@citi.umich.edu

In article <1992Oct7.183931.1971@oakhill.sps.mot.com>, dong@oakhill.sps.mot.com (Don M. Gibson) writes:
|> In article DjA@engin.umich.edu, jwh@citi.umich.edu (Jim Howe) writes:
|> >In article <1992Oct6.182347.17164@oakhill.sps.mot.com>, dong@oakhill.sps.mot.com (Don M. Gibson) writes:
|> >|> In article g8B@engin.umich.edu, jwh@citi.umich.edu (Jim Howe) writes:
|> >|> 
|> >|> >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.
|> >|>
|> >|> the deficit as an isolated occurance is not scary.   it is 10
|> >|> straight years as $100Bil+ deficits that are scary.  It is the interest
|> >|> that is the largest portion of budget that is scary.   It is that
|> >|> fact that the govt. is fiscally impotent during the recession that
|> >|> is scary.  it is the fact that the deficit sucks up >1/2 of investment
|> >|> capital that is scary.....
|> >|> 
|> >
|> >How has the deficit made the government fiscally impotent?  Are you
|> >implying that if we weren't running a deficit we would then be able
|> >to run a deficit to help the economy?
|> 
|> YES.
|> 

Let me get this straight.  If we weren't running a deficit, we could
run a deficit and improve the economy.  But we are running a deficit,
so it would seem that the economy should be improving.

|> >  If Keynesian pump priming is
|> >supposed to work, why are we in a recession with such a large deficit?
|> 
|> -business cycle
|> -M2 tightening
|> -global economic downturn
|> -no confidence in bush
|> 

All good points.  However, if running a deficit would help the economy,
but our current deficit doesn't appear to be helping the economy, wouldn't
that simply suggest that we need to run a bigger deficit?  Of course
this whole notion of Keynesian pump priming is garbage.  Unless the
deficit is monetized, leading to inflation, you can not make the economy
grow by taking money from taxpayers (who would spend and save it) and
give it to the government to spend.  You may rearrange the economy
but you won't make it grow.  Keynes believed that inflation was a 
valuable tool because you could give the illusion of a growing 
economy and workers were too stupid to realize that their purchasing
power was actually declining.  Keynes also got very confused when
dealing with the terms 'saving' and 'investment'.  Sometimes he
stated that saving was investment, and other times he stated 
otherwise.

Let me give you my reasons why we are in a recession:

- business cycle
- tax increases at the start of the recession
- overcompensation for S&L debacle resulting in overly conservative
  bank loans
- Collapse of the junk bond market (although it is starting to recover)

|> >As to the fact that the deficit sucks up > 1/2 of investment capital,
|> >I would like to see a source for that figure.  If the government 
|> >borrowing is so detrimental, why are interest rates so low?
|>
|> are they?  some would say that >5% real rates is pretty high for
|> a pseudo-recession.
|> 

The various Fed rates are the lowest they've been since the 60's, I
believe.  Interest rates still carry a residual inflation premium.
Real interest rates have dropped even while deficits increased.

|> >  The point
|> >is that there is plenty of capital to support the deficit.  It isn't
|> >adversly impacting the capital markets.  Government intervention and
|> >spending does more damage than the 'deficit'.
|> 
|> how does govt. spending on say freeways hurt the economy?
|> 

It all depends on whether the freeways were needed in the first
place.  In Michigan there is a bridge called the Zilwaukee Bridge.
Originally the bridge was a drawbridge.  Since the bridge was on
I-75, it created enormous traffic backups when the bridge went up.
For years a new, taller, bridge was planned to replace the old
bridge.  Finally, the new bridge was built, costing millions of
dollars and costing far more than original estimates.  Of course
there was one additional hitch.  The need for the bridge was
eliminated a few years before it was built because a bypass was
built which avoided the bridge.  For the cost of a sign telling
drivers to use the bypass (which didn't add much at all to the
distance or speed of travel), the costs associated with the
bridge could have been avoided.  While it is true that the 
construction created 'jobs', the money used to create an unnecessary
good could have been spent on other items that were more desireable.
As a result, our standard of living was hurt.  Building this
bridge made about as much sense as hiring the workers to dig a
big hole and fill it up again.  It was money wasted.

I'm not saying that all government spending is wasted (although
it wouldn't take much to convince me otherwise), however a
significant portion *is* wasted and *is* unnecessary.  Farm
price supports, guaranteed loans, etc. are all unnecssary.
Let people keep more of their money so they can buy what
they want, rather than hiring lobbyists to convince the government
to take money from other people to give to the groups the
lobbyists represent.

|> >
|> >|> 
|> >|> >would make the economy worse, and would therefore result in lower
|> >|> >tax revenues,
|> >|>
|> >|> non-sequitur!
|> >|>
|> >
|> >How do you figure?  A smaller economy will generate less tax revenue
|> >than a larger economy.  Raising taxes is not the way to stimulate
|> >the economy.
|> my misunderstanding.  you don't mean *relatively* worse, but absolutely
|> worse.  in that case i disagree that "many of his [perot's] ideas" (=??) will
|> result in negative GDP growth.  remember, the second largest tax increase
|> in history (reagan's) didn't result in negative growth.
|> 

I do mean *relatively* worse.  I believe that Perot's programs will
make the economy grow less than in the absence of his programs.  I
also don't believe that the 'problem' warrants the solution he is
proposing, even if it did work.  This is not to say that I disagree
with all of his proposals.  I don't remember specifics, but I 
recently read an article detailing some of his ideas, some of
which I agree with.


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,alt.politics.clinton