From: thf2@ellis.uchicago.edu (Ted Frank)
Newsgroups: talk.politics.theory,talk.politics.misc,alt.fans.rush-limbaugh
Subject: Re: National debt is not bad
Date: 24 Jan 93 03:21:54 GMT
Reply-To: thf2@midway.uchicago.edu
Organization: University of Chicago

In article <1993Jan24.013530.13720@oracle.us.oracle.com> kwee@oracle.uucp (Karl Wee) writes:
>From: thf2@ellis.uchicago.edu (Ted Frank)
>>
>>>But they have clear, credible plans of paying back the debt.  Does the US?
>>
>>Yes.  Not a single US debt holder has ever gone unpaid.
>
>That's only HISTORY.  It tells little about the future as everything is
>different.  If the US doesn't have a PLAN to repay even the interest, (if it
>lets the debt grow exponentially) it's much worse off than the college
>student or the home buyer.  Who's to say it won't default, repudiate, or
>inflate away at least part of the debt?  The numbers are overwhelming.

Then put your money where your mouth is and make a fortune investing in
put options for T-bills.  Mass delusions of investors do happen, but I
think there's a difference between investors willing to invest in T-bills
and investors that pay thousands of dollars for Dutch tulips.  The risk
of this default is already calculated ex ante in the interest rate for
the treasury bills, and the low interest rates indicate that investors
as a whole don't believe there's a risk.

>For example, what happens when Baby Boomers start collecting social security?

They're already talking about raising the retirement age.  They might
lose some benefits.  Or, they might finally get around to scrapping the
whole unworkable social security system and replacing it with something
else.

>Our dear "leaders" have been using the current surplus of SS (due to working
>Baby Boomers) as regular revenue to make the deficit look smaller.  

Of course they are.  What are they supposed to do, leave the money in a
vault?  Why not invest it in T-bills, which is what it comes out to
this way.

>>Speaking of negative feedback loops, that's just what helped along the
>>Great Depression in a big way.  Government kept "balancing" the budget,
>>which made revenues go down as the economy shrank, which led to more cuts,
>>which ...
>
>Again, things are completely different now.  The govt's fiscal status, for
>example....  Compared to the Great Depression, the economy does NOT need
>govt stimulus nearly as badly.  

You got cause and effect mixed up.  *Because* of government stimulus, there
is no comparison between now and the Great Depression.  The various
safety nets prevent a complete collapse of the economy if there's some
shrinkage. 

>In fact, one of the possible paths we'll
>go down if we DON'T balance the budget is an Even Greater Depression when
>the govt decides to drastically cut spending and increase taxes to solve
>its "new found" fiscal problem.  

I never disputed that the deficit we currently have is an inefficient
one and a problem.  I only disputed the contention that all deficit
spending is invariably bad.  I think we need to distinguish between
a structural deficit (one which will exist even in *good* times), and
one caused by the state of the economy because of government stimulus.
Carter, for example, would have had a balanced budget if the economy
had been healthy.  Reagan, on the other hand, in the midst of an economic
boom, had a budget deficit much larger than Carter's.

>>It would be even worse today, because the deficit is even more reliant
>>on the state of the economy because of transfer payments that do nothing
>>to add growth.  
>
>Please show me your reasoning in more detail.

If the economy shrinks, (1) tax revenues go down and (2) unemployment,
and therefore unemployment benefits paid out by government, go up.  
Presumably, poverty also increases, so those welfare payments increase.
Decreased revenues and increased spending equals more deficit.  By
definition.  If there were a balanced budget amendment, every time
there was a recession, there would have to be increased cuts in government
spending and increased taxes, which would worsen the recession, which
would lead to increased taxes and spending cuts, which would ad
infinitum...

>>I think it's even more dangerous to exaggerate the problem of the debt,...
>
>How have I exaggerated the problem of the debt?

Others have called for a balanced budget come hell or high water.  I'd
prefer a look at the underlying economic issues rather than a simpleminded
approach of "balance the budget because deficit is bad".
-- 
ted frank                     | thf2@ellis.uchicago.edu 
standard disclaimers          | void where prohibited
the university of chicago law school, chicago, illinois 60637
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