From: platt@watson.ibm.com (Daniel E. Platt)
Subject: Re: Deficit - can it be corrected?
Date: Fri, 02 Oct 1992 14:14:37 GMT
Disclaimer: This posting represents the poster's views, not necessarily those of IBM
Organization: IBM T.J. Watson Research Center

In article <1992Oct2.012532.28075@ll.mit.edu>, rp@llex.ll.mit.edu ( Richard Pavelle) writes:
|> 
|> Is it possible to show that the deficit can, in fact, be paid back (if that is
|> the correct term) as opposed to wiping it out and starting over. It seems
|> intuitive that if the size of the deficit is sufficiently large, there is no
|> possibility of paying it back.
|> 

Just to get terms straight --

	Deficit = difference between payments and income (measured quarterly or
		annualy).
	Debt = negative balance -- represented by bonds and notes that the
		government is obligated to pay interest on.

When the government runs a deficit, it issues bonds to cover it.  It has to
pay interest on the bonds, which contributes to the deficit.  

My understanding is that the debt is roughly the size of a mortgage, and will
feel like that to pay it off.  If we made a concerted effort, we could do it
in 30 years without too much pain.  At the start, most of the payment would
go towards interest anyway; the actual charge above interest rates required
to pay off the debt would be relatively small.

The first thing that must be done is to control the deficit, and actually
turn that around.  The current structure of the budget seems to include
entitlements and debt services (interest) as the largest components.
The entitlements include welfare and medical, with medical being the
most rapidly growing segment (this shows up in the private sector as
well, where employee insurance charges is getting to be near $1,000 per
automobile for some companies.

If you go to a hospital, it becomes obvious why costs are so high.  There
is no incentive to keep costs down.  People can go get health care at any
institution regardless of the rates charged.  Most people never really
have to look at their bills; that's all handled for them by the hospital,
who bills the insurance companies directly.  Medical costs are hard to
control because there is effectively no market.

A similar situation exists for welfare recipients -- particularly in housing.
Housing costs are higher for welfare recipients than for many working families.
Yet, the quality of services (vermin infested appartments, without hot water or
heat, and with walls that are falling down from the leaking sewage from the
appartment above, the stench and disease... you get the picture) is not
nearly as good as the services delivered to the working folks for much less
money.  Again, there's no incentive to keep costs down.

I really feel that, given incentives, costs could be controlled, and more
could be delivered for the tax $.  I'm all for keeping the programs intact
if the costs can be controlled since the ultimate impact on the economy can
be positive.  I believe market forces can be used to help bring down the
charges (give people the money for treatment or housing up front, and let them
go shopping; they'll have a real incentive to keep costs down).

At least, that's my 2 cents.


Dan
Newsgroups: sci.econ,talk.politics.theory