From: nelson_p@apollo.hp.com (Peter Nelson)
Subject: Re: What happens when USA goes bust?
Date: Wed, 14 Oct 1992 12:52:12 GMT
Organization: Hewlett-Packard Corporation, Chelmsford, MA

In article <1992Oct13.221531.2815@oakhill.sps.mot.com> pjm@anegada.sps.mot.com (Patrick J. McGuinness) writes:
>In article <4P68RB3w165w@cybernet.cse.fau.edu> waldo@cybernet.cse.fau.edu (Todd J. Dicker) writes:
>>nelson_p@apollo.hp.com (Peter Nelson) writes:
>>
>>>   The point is that a significant chunk of our ~ $5 trillion national
>>>   economy is borrowed money -- the economy is, in effect, artificially 
>>>   big and we now need to get back to reality.  I don't see any good way
>>>   to do this without precipitating one of the problems suggested
>>>   earlier: depression, high inflation, breakdown of social order, or
>>>   a totalitarian government -- and maybe ALL of these.
>
>An economic program that is pro-growth but anti-debt would do best.
>
>This "fin de siecle" talk, from Mr Nelson, Mr Perot, or whomever,
>is useful in calling attention to the problem of the deficit and debt.
>But it is hyperbole to talk as if the we are inevitably doomed.
>Our economy is not sinking. We just have a simple problem - our Government
>spends too much money. It has a simple (economically speaking)
>solution. Stop spending more money;

  But what exactly does this mean?   Do you mean "stop spending the
  part > revenues"?   If so then the economy takes an immediate 
  $390 billion dollar hit.   This is 10 million jobs, NOT counting
  multipliers (NYT says that defense industry jobs have a multiplier
  of 2.5).  

  I agree with the "stop spending" part, but I challenge you to come
  up with some numbers that show how we can do this and not go into
  a double-digit unemployment rate.


>It would be pro-growth, and it would cut the deficit.

  Do the math!   Let's see the numbers.   I say cutting the deficit
  cannot be done without the economy taking a huge hit: The current 
  projected FY93 deficit is about $390 billion  -- the current "con-
  sensus forecast" (released last Friday) for GDP growth is 2.7%, i.e.
  about $148 billion (and note that all recent consensus forecasts
  have proved optimistic).   And if you were to cut the deficit by,
  say, even a quarter in FY93 you would add 2.5 million to the
  unemployment rolls, which would easily stall even the 2.7% growth
  projected.   

  So again I say, do the numbers and show us how you can get growth
  and deficit-cutting at the same time.  

  I still say we have to cut the deficit, and the economy be damned,
  because if we don't it will be damned with interest down the road.
  

>Lost jobs? No, we gained 18 million jobs in the years 1983 to 1990.
>No disaster there, just the longest peacetime expansion that increased
>our economy 30%

  And if you look at the increase in government+corporate+private debt
  you'll see that a large chunk of these jobs were financed by debt! 
  Again, do the numbers.  

  Note that debt per se isn't bad.  What's stupid is taking on debt
  that exceeds your reasonably anticipated growth in asset value or
  income.  If I float a corporate bond at 8% compounded annual rate
  and the money allows me to expand my company by 10% compounded 
  annual rate, that's OK.   The stupid thing is that Americans have
  been borrowing money at 8% or 10% or 18% (credit cards) while 
  experiencing real growth way below this.  

  So once again, to Mr. McGuinness I implore: show us the numbers.



---peter



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