From: alan@auntbea.austin.ibm.com (Alan R. Weiss)
Subject: Re: This "Interest Rates are Sucking up the GNP" Thing
Date: Tue, 26 Jan 1993 15:08:51 GMT
Distribution: usa
Organization: (speaking only for myself from Austin, Texas)

In article <C1Fy16.Bxs@newsserver.technet.sg> ipser@solomon.technet.sg (Ed Ipser) writes:
>In article <1993Jan25.153216.10311@Princeton.EDU> niepornt@phoenix.Princeton.EDU (David Marc Nieporent) writes:
>>In article <C17LIt.1AME@austin.ibm.com> alan@auntbea.austin.ibm.com (Alan R. Weiss) writes:
>>>Would a sizable percentage of the GNP being sucked up by interest
>>>charges to service the debt prove it to you?  Because that's exactly
>>>what's happening.  Is $4 trillion biggies enough to prove it?
>>
>>Sizeable?  It isn't that big.  The interest on the debt is ~$300 billion
>>a year.  The GNP is ~$5 trillion.
>
>It seems to be an article of faith among the Perotians that interest payments
					      ^^^^^^^^^

Is that like Laotians?  Martians?

>are a drag on the economy; that when interest is payed on the national
>debt, it goes into a big black pit never to be seen again. Thus, the bigger
>the debt, and resulting interest payments, the bigger the cause for panic.
>
>Of course, the truth is far less dramatic. Interest payments are not taken
>out of the GNP any more than any other element of the budget. Every dollar
>which the federal government expends in interest payments is income which
>somebody holding treasury bonds earns. It is a transfer, nothing more.
>
>I feel silly pointing this out be to listen to the discussions on the net,
>you would think that this was news to certain people.

You should feel silly for saying this, Ed, for the following reasons:

	1.  Public debt crowds out private investment.  Have you
	    tried getting, say, venture capital in the last few years?
	    Tried getting a bank loan for a new business?  ALL Economists
	    believe that public debt competes with private debt for
	    the investor dollar.

	2.  What have we got to SHOW for all this debt?  I mean, was
	    it invested in "infrastructure" (i.e. new roads, schools,
	    productive enterprises earning a profit, etc)?  No.
	    It was consumed.  It may have kept some people alive for
	    awhile, but it did not increase aggregate wealth.  It has
	    been a rathole.

	3.  As the debt mounts, the pressure for more and more taxes
	    increases.  Even more dollars are allocated to servicing
	    the debt, instead of spending it on other things.

	4.  While bondholders and debtholders MAY reinvest the
	    transfers into productive enterprises (stock market,
	    VC money, etc), MOST simply roll it over into more
	    public debt.
	
	5.  It tends to drive up interest rates.  While interest rates
	    are farely low right now, wait and see what they will be ...

	6.  Anyone who cares about the GNP is a fool.  It is the NNP
	    (Net National Product) that counts.  Interest on the debt
	    is not counted in the NNP, is it?

	7.  While America consumes, Japan and the EC invest.

-- 
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 _| ~-. alan%auntbea.austin.ibm.com@ibmpa.awdpa.ibm.com | Austin, TX 78758
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