From: bucknerb@bnr.ca (Brent Buckner)
Subject: Re: "Death of America"
Organization: Bell-Northern Research, Ontario, Canada
Date: Wed, 23 Dec 1992 16:32:20 GMT

In article <1992Dec21.171659.18729@ttinews.tti.com> kevin@drogges.tti.com (Kevin Carothers) writes:
>In article <1992Dec14.224955.7981@murdoch.acc.Virginia.EDU> spm2d@uvacs.cs.Virginia.EDU (Steven Miale) writes:
>%We're on a collision course with the national debt.  In a few years, on the
>%current course, 100% of tax payments would be required to pay the interest
>%on the debt alone.  When investors in US government bonds finally start
>%to panick (read: come to their senses about our political reality), we'll
>%finally face reality.  There really is no room to maneauver: whatever
>%parameter we change in order to get out of this, there will be some kind of
>%disaster.  Unlike the 1950's, the world market has fundamentally changed and
>%we can no longer grow our economy out of the debt.
>%
>
> Says who. You?

Are you challenging the implied assertion that the U.S. will not
enjoy the levels of growth that it had in the early post-war period?

>
> You think the national debt is bad? Look at the CONSUMER debt! It was
> something like 12 trillion in 1990.
>
> Sure, the gov't is following a liberal spending policy. But I can guarantee
> that they won't arrive at the gates of  hell alone :-).

Fiscal irresponsibility on the part of consumers does not excuse
fiscal irresponsibility on the part of government.

>
> Increasing tax receipts and decreasing spending was Perot's big picture. 
> Clinton tends to favor increasing receipts from a growing economy. 

Perot's estimates included increasing receipts from a growing economy.
No one is opposed to increased tax receipts from a growing economy.
Also note that the signals from Little Rock indicate that Clinton
forsees other steps being taken.

>
> The National debt is simply the difference between receipts and expenditures,
> and NOTHING else. ANY method can be used to reduce (or eventually elimiinate)
> it.

Given that the method works, yes.  My favorite nightmare scenario
goes as follows:

1)  Increasing tax rates would not generate increased tax
    revenues.
2)  Decreasing government spending would (though a multiplier
    effect) decrease the GDP such that the debt/GDP ratio
    would increase. 

>
> Unless you show evidence that economic growth can't work to reduce the debt, 
> I can't give much creedence in what you say.

Economic growth can work to reduce the debt (leaving taxes as a constant
portion of GDP).  However, there is a point at
which interest on debt exceeds such an increase in receipts for
cautious growth estimates. 

Using only budget numbers, a freeze on real program spending, a real
interest rate of 4.35%, a real GDP growth rate of 2% and
capturing 20% of real GDP growth as government revenue
will result in a declining debt-to-GDP ratio in 1999.
The real interest rate and real GDP growth rate assumptious
seem duly cautious.  The freeze on real program spending is
achievable (especially in a growing economy).

The dangerous part of this scenario is that it ignores off-budget
items.  This is what worries me.  I'm not convinced that
growth alone will do the job, given that there isn't much
margin of safety when we use only the on-budget items
(and ignore unfunded liabilities).

I'm keeping my spreadsheet handy and my hand near the panic
button.
-- 
at Bell-Northern Research
voice:        (613) 765-2739
Canada Post:  P.O. Box 3511, Station C, Ottawa, Canada, K1Y 4H7
I do not claim that BNR holds these views.  
Newsgroups: sci.econ