From: tom@europa.lonestar.org (Tom Kimball)
Newsgroups: alt.politics.elections,talk.politics.misc,tx.politics
Subject: Re: The end of the Reagan Era
Date: 9 Nov 92 03:49:20 GMT
Distribution: usa
Organization: Moria Mining Guild (BBS) -- Dallas, Texas, USA

In article <Wg==z6+@engin.umich.edu> jwh@citi.umich.edu writes:
>In article <1992Nov5.140902.24401@mksol.dseg.ti.com>, mccall@mksol.dseg.ti.com (fred j mccall 575-3539) writes:
>|> In <lt-=D!C@engin.umich.edu> jwh@citi.umich.edu (Jim Howe) writes:
>|> 
>|> >In article <1992Nov3.141621.22028@mksol.dseg.ti.com>, mccall@mksol.dseg.ti.com (fred j mccall 575-3539) writes:
>|> >|> A dollar of debt is MUCH worse for the economy (assuming a reasonably
>|> >|> healthy economy with a reasonable demand for capital -- which we don't
>|> >|> have right now).
>|> 
>|> >How is it MUCH worse? [...]
>|> 
>|> But you cannot ignore the cost of money that must be paid for the
>|> borrowed funds.  Hence, not only are borrowing and taxing equally bad
>|> at the moment they occur, but in the borrowing case there must be
>|> subsequent taxation to pay the debt and the cost of the money.
>|> Overall, that looks more than twice as bad to me.  It's as if they are
>|> taxing twice, plus interest.
>|> 
>
>But debt is paid back with cheaper funds.  A dollar today is worth more

Not when you consider all that interest we are paying.  Since it appears 
unlikely that we will get around to paying off any the principal for several
decades, you will probably be paying interest on 1992's debt during EACH of
your tax paying years over the next several decades.  It will be something 
like this:  You take a nice vacation this year, and charge everything
on your Visa Card.  For 40 years you don't pay any of the principal, but
each month you do pay for the interest.  Finally in 2032 you get around to
paying off the principal because you get tired of paying all that interest.
Even taking inflation into account, your final cost for what you bought is 
much more than double the original price.

When you take into account that it will be a LONG time before we pay off the
principal on the debt, it is not unrealistic to say that each $1 of debt 
from the 1992 deficit will cost much more than double that amount over the long
run, even adjusting for inflation.  Even if you do selfishly (extremely 
selfish, in fact) want your children and grandchildren to pay for the 
principal on 1992's debt, the interest that will come due during your 
taxpaying lifetime will cost you a LOT more than simply paying for all of 
1992's government during 1992.


>than a dollar paid in 10, 20 or 30 years, even if there is no inflation.

Even if there were no inflation, using 1992 tax receipts to help pay 
1982, 1972, and 1962 government operating expenses is not good sense.


>So while the cost of $1 of debt may be higher than the cost of $1 in
>tax, it is only the cost of the time value of money.  Also, as long
>as people believe the government will pay back the debt, additional
>funds can be raised.  A portion of these funds can be used to pay
>back the old debt and interest, i.e. the debt gets rolled over.  You

This only makes things worse.


>may well argue that at some point taxes will be needed to cover debt
>repayment, so it would be better to not incur the debt today.  However,
>all you are doing is exchanging a probable tax increase in the future
>for a certain tax increase in the present.  

What is certain is that we will have to pay MORE in the future for what
we spend today.  Common sense tells us that the best way to reduce our
total lifetime taxes is to pay for 1992's government in 1992, instead of such
years as 1993, 1997, 2002, 2017, and 2032.


>Neither solution is good.

Only if decreasing your total lifetime taxes is a bad thing.  Or if you are
already around 70 years old.

-- 
Tom Kimball  			tom@europa.lerctr.org    
tom@europa.lonestar.org		tom%europa@egsner.cirr.com