From: king@cogsci.ucsd.EDU (Jonathan King)
Newsgroups: alt.politics.elections
Subject: The GDP and growth (Re: Email Copy of REPUBLICAN PLATFORM to me)
Summary: GDP ain't the whole ball of wax, people
Date: 14 Sep 92 22:30:11 GMT
Distribution: na
Organization: University of California, San Diego

(I've limited the distribution and taken alt.flame off the newsgroups line;
also, I've eliminated a (null) level of citation in the below exchange.)

MEDELMA@cms.cc.wayne.edu (Michael Edelman) writes:
>In article <92254.152550MBS110@psuvm.psu.edu>
>>"Well, if you'd let me write $300 billion in hot checks every year,
>> I could give you the illusion of prosperity too!"
>>   -- Lloyd Bentsen, '88 vice-presidential debate.
>>
>>We'll be paying for Reagan's alleged boom for the rest of our lives, 
>>thank you.

(Aside:  didn't Bentsen's quote use the figure of $200 billion?)

>Apparently we have here yet another person who doesn't understand 
>that you can't use absolute amounts to compare debts values between 
>a $2 Billion economy and a $7 Trillion economy. 

Well, I'm a new participant in this discussion, but I'd like to agree:
no you can't.  (And did you mean "Trillion" for "Billion" in the
above?)  The question is this: where do we get that $7 trillion
economy from?  In 1990 we only had a $5.5 trillion GNP (and I'm
assuming approximately the same GDP, please correct me), and growth
since then has been less than robust. :-)

>At the end of WWII we had a debt that was nearly THREE TIMES the size 
>of the 1990 debt. Got that? *3* times as big. It was in the neighborhood 
>of 120% of GNP. 

Uh, do you mean "debt" or "deficit" here?  I assume you mean "debt",
but you were commenting on somebody else who was talking about
"deficit", and it's a bit confusing.

Having said that, it only remains to say this: so what?  You mean a
wartime economy had a screwy debt-to-GNP ratio?  I bet that *never*
happens! :-) This ain't wartime now, though, and the debt is about $4
trillion in what is at best a $6 trillion economy, which looks to be
closer than a factor of 2 than a factor of 3, and this was also true
in 1990.

But the real change here is the size of the debt service, and the fact
that the WW II debt *was* serviced.  Even in 1950, debt service was
13.4% of federal outlays.  Today that number is over 20%, and still
growing.  The other point is about debt service itself.  Yes, the WW II
debt was pretty high, but it *decreased* from 1945 to 1950 while the
economy (and federal outlays) grew.  This may be a difficult trick to 
pull again this time, and is the point of most of this discussion.

>Now, following the above attempt at a logical conclusion, it should take 
>about three lifetimes to pay that debt off- and yet in a very few years it 
>had shrunk by approximately 70%.

(The conclusion was that we would be paying this debt off for the rest
of our lives.)

Well, I think your figures argue for 2 lifetimes, but, again, I don't
think the situations are even vaguely comparable:  We weren't having a
real war time economy a year or three ago, and the US does not stand more
or less alone at the top of the economic ladder.  This is not to mean that
I totally disagree with you:  even I expect the debt problem to be smaller
in a generation.  But this doesn't mean that Something Bad didn't happen
to create it in the first place.
 
>Total government spending in the 70s was 19.4% of GNP. In the 80s it was
>2.4% of GNP. That's not enough to bankrupt the nation.

(I assume there is a missing digit in the second sentence there.)  

Government spending isn't what bankrupts a nation, we both agree.  But
it is alarming to see such a huge increase in the percentage of
government spending that goes for nothing but debt service.  That is
money that *can't* go for other more productive things, and it has a
tendency to crowd such things out of the picture.
 
>If Bentsen's arithmatic was correct, then Dukakis' regime in Massachusetts
>should have resulted in a boom economy rather than the nightmare it was.

This doesn't make any sense.  The Massachusetts economy was a
*classic* "boom" economy, built on huge federal outlays in defense and
defense electronics, speculation in real estate, and other things that
you (and I) should have known couldn't last.  Surprise!  They didn't
last.  Plus, there was a major technological shift away from a key
regional product, e.g. minicomputers.  But in many ways, Massachusetts
was completely typical of many states in the over-heated 1980s, but,
like California, managed to get more of the goodies than some other
places.

Further, the Dukakis regime in Massachusetts was coextensive with the
Reagan and Bush regime in Washington, and people don't gasp at the
Massachusetts Debt (rather they gasp at the Massachusetts Spending
Rollbacks).  This does not excuse the weird use of the "Massachusetts
Miracle" slogan in 1988; it was no miracle, and it wasn't just
Massachusetts.  The real question is whether there was any long term
benefit to the 80s boom: did any of it stick?  Right now it's very
hard to say.  There is some additional housing stock, a lot of cheap
(and probably decent) office buildings, and a pretty well-trained
workforce hanging around, but things are still slow now, just as they
are in California.
 
>The revisionists are postulating a sort of simpleminded Keynsian model
>in which the government pump-primes the economy by massive spending, 
>which was the favored economic tactic of the Democrats throughout the 60s 
>and the Carter era, which in turn makes you wonder why they suddenly don't 
>care for it anymore.

What?  First off, it wasn't all revisionism.  I personally heard
people like Herb Simon say the whole thing was perfectly Keynesian
back in 1984 before the height of the boom or the start of the bust,
and I know there was a lot of talk about the size of the budget
deficits at that time as well.  I think the revisionism is all yours
here, too, since the real Keynesian method is to prime the pump in bad
times and catch some of the water in the good.  We were priming the pump
in good times and found ourselves short of water eventually.  (At least
this would be my simplistic Keynesian analysis. :-))

I also find it strange that you accuse Carter of doing exactly the
same thing, since any real pump-priming he did was arguably in bad
times.  (I say real because it was a time of high inflation both in
the US and everywhere else largely due to the enormous increase in the
price of oil; guess what oil did in the low inflation 1980s?).
Further, he clearly did a lot less pump-priming than Reagan did in his
first years.  (Not a slam, just an observation.)
 
>Regardless, it doesn't hold water. The great increase in government 
>spending during the 80s was in non-defense spending, which went up from 
>21.1% of GNP to 23.7% of GNP, the bulk of it in entitlement payments. 

(I assume that by "non-defense" spending you mean "everything else";
otherwise, ignore the following.)

Entitlement payments are the bulk of non-defense spending, but from
pages 140 and 143 of my World Almanac I calculate that interest costs
increased from 2.7% of GNP in 1980 to 4.8% of GNP in 1990, which means
that 2.1% of that 2.6% increase in non-defense was actually just
*interest*, and that everything else that went up, including
entitlements, went up a whopping .5%.

>Defense spending increased only 0.6% of GNP during the "greatest 
>peacetime military buildup in history". 

...which was more of an increase than than everything else if you
discount the rising cost of interest.  Many other things went down.

>These entitlement payments didn't stimulate the economy. 

How do you figure this?  People spent that money on goods and
services, right?  And that's what GNP is.  If your point is that
entitlement payments aren't as efficient as other means to stimulate
the economy, I may well agree with you on that.

>What aided growth was something that's not in the Democratic platform: 
>A consistent policy, low inflation, and the market's confidence in 
>that policy as shown by the low long-term rates of the time. 

Heck, it would be great if you could write "low inflation" into your
platform (everybody would do it), but you can't.  Low inflation can be
the result of factors difficult to control, such as a real *decrease*
in oil prices.  I can guarantee you that if this had happened in the
late 1970s, lots of things (including my almanac) would look a lot
different.  As far as market confidence goes, I don't know what to say
other than market (e)valuations do tend to fluctuate a lot, and would
you like some salt with those LTV bonds. :-)

>Just compare the Treasury bond yield curves of the 80s with those of 
>today. You'll see a marked difference in the long term trends, notably 
>the upward acceleration in the long term rates.

I assume you mean by this that long term rates right now are stubbornly
high in relationship to short term rates.  Isn't this actually considered
a problem these days?  One of the reasons why there isn't much new plant
investment?  I could be missing something here, though, and I'm sure
somebody will tell me what it is.
 
>It really shouldn't be necessary to keep reprinting these data, but 
>as long as there are those who haven't seen them or don't understand 
>them I suppose it is.

I agree.  But I have to say that your presentation of these data did not
seem as clear or obvious as you seemed to intend.  Some of them even
appeared to be wrong.

jking

(btw--My sources for all this was the 1992 World Almanac and book of
 facts.)
Newsgroups: alt.politics.elections