From: jwh@citi.umich.edu (Jim Howe)
Subject: Re: All deficits are not created equal.
Date: Tue, 06 Oct 92 15:32:00 EDT
Organization: IFS Project, University of Michigan
Reply-To: jwh@citi.umich.edu

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?  If Keynesian pump priming is
supposed to work, why are we in a recession with such a large deficit?
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?  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'.  Eliminating the deficit
will not help us, we need to lower spending.  If by lowering spending
we also reduce or eliminate the deficit, great, however eliminating
the deficit does not need to be the primary target.  Spending is
the primary target.

|> >As long as the deficit is not monetized, the impact on the economy
|> >is minimal, at least at current levels.  Does this mean we shouldn't
|> >do something about it?  No, it just means that it would be foolish
|> >to ruin the economy in order to solve a 'problem' that really isn't
|> >as bad as people would like to think.  Perot's proposal is the most
|> >idiodic.  Many of his ideas would simply kill economic growth, and
|> >in turn reduce revenues available to the government.  Many of his ideas
|> 
|> i hate to argue with such elegant specifics, but the revenue enhancing
|> features are lowest impact by design.
|> 1) nothing happens until stagnation ends.
|> 2) phased in gas tax (on prices at historic all time lows).
|> 3) tax on SS for folks earning >$25K.
|> 4) change highest marginal rate from 31% to 33%.   there are folks
|> that pay 33% already.  2% is low impact.  he plans to eliminate
|> the deficit in 10years, not the debt!!!  think about that.

You could just as easily eliminate the deficit by freezing spending.
Look at the 1980's.  If spending had been frozen (or even increased
slightly), the additional growth in the economy would have eliminated
the deficit (not the debt).

|> 
|> >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.


James W. Howe                  internet: jwh@citi.umich.edu
University of Michigan             uucp: uunet!mailrus!citi.umich.edu!jwh
Ann Arbor, MI   48103-4943