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11/08/2007

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But the good news is we'll be paying off that debt in dollars that won't be worth much!

It's obscene. And speaking as a conservative, there is no credible defense for it.

The problem is, and always has been, that no matter how much we spur the economy with tax cuts, and no matter how much revenue into the government increases, there isn't an elected official inside the beltway, D or R, that can ever say no to a spending bill. And Bush and the Republican congress were some of the worst big spenders we've ever seen.

But in this case it was Republicans, and I'd still like to know how we're going to pay it back.

Um...

Talking about the national debt without talking about the national economy makes as much economic sense as single-entry accounting: they both ignore half of the picture.

As long as the economy grows faster than the debt--which it has been doing for quite some time now--there's no need to worry about the debt growing.

There's also no need to argue whether cutting taxes increases tax revenues: it's a proven fact.

What's more, we won't be paying off that debt (held in Treasury Bonds)--ever. The reason is that we roll the debt over into more bonds, which means we never, ever have to pay it off debt. Furthermore, paying off the debt would be downright stupid, as it would harm the economy enormously without yielding any benefit. On the other hand, maintaining the status quo helps maintain our booming economy.

If you wanted to understand economics rather than just emote about it, you could do a lot worse than to start reading the Skeptical Optimist (first link above).

The Administration, like some of those commenting, believe that our friends the Chinese would never, ever dump their massive holdings of of T-Bills, essentially bankrupting the Gov't due to its inability to sell new issues. That's a nightmare scenario, the Chinese would never do that, but them Muslimites, you can't trust them. Thank Jesus were fightin' em over there, so we aren't fightin' em here. C'mon on over for a beer later, I'll grab a wheelbarrow full of greenbacks, run to the store and buy a six pack of Tsing Tao.

Wally, Wally, Wally,

If the Chinee--or anyone else--decide to sell their T-Bills before they're due, the US gummint won't be the one buying them back. They'll have to sell them on the bond market, where they'll probably get a lot less money than if they held them to term. All the dumping will do is increase supply, which will probably cause a drop in value--for bonds that the US gummint has already issued, not for new ones. (Why is it that liberals never take supply and demand into account?) New issues will remain in demand, regardless of the going rate for existing T-Bills, as long as the US economy remains strong and the US honors its debts--which it always has.

No harm to the US at all.

What scares me is that the average Congresscritter shows no more understanding of economics than our ignorant, calumnious friend Wally.

You know, you just can't have an unhinged, Sullivanist response to these sort of things. I totally get where you're coming from Tom, and if I thought there was more to this post than a Sullivanist emotional reaction I might even dig what you're saying.

But the truth is that the first half of Squid's post is absolutely correct. As someone who knows a little about this stuff, I'd say you need to add a little context. The most important being what percentage of GNP is the deficit and the debt, and how does this compare to historical levels that should cause concern? The answer, for an informed intellectually honest person, is this is not a big deal. Of course opinions can differ, but anyone who claims Clinton was "paying off debt" starts with a credibility deficit of their own.

Sure Clinton had eliminated the budgetary deficit, but he did so while dramatically increasing long-term spending commitments, and unrealistically cutting defense spending. Furthermore, the dude was still borrowing from the social security surplus so he just changed creditors and didn't "start paying of debt". Anyone who tells you different, just doesn't know what they're talking about.

The fact is that the Bush tax cuts have increased tax revenue (jonathan Chait's confused treastise not withstanding). As the economy continues to grow our debt will be manageable, and the deficit will most likely fluctuate but remain manageable.

That is until Hill nationalizes healthcare.

Nice you're keeping the faith, Pursuit, because that's what Supply Side is: faith.

You're right that percentages count. You're wrong that $3.3 trillion is not a big deal. Growth in interest on the debt is choking off the federal government's ability to do other things while demanding that taxes be held high. That may be a strategy of which you approve. I don't.

And any benefit should be weighed against the cost. A bigger economy is great; we all benefit. But what's the incremental benefit we've realized at the $3.3 trillion cost? (And remember, that number will continue to rise; the Republican strategy has been to back-load programs so that the costs don't begin dramatically rising until the "out-years.") Certainly, not 100% of current economic growth can be attributed to the President's tax cuts. I, personally, would be interested in a non-partisan cost/benefit analysis.

And Clinton was paying off the debt. He had the help of a Republican Congress, certainly. But during the Clinton Administration surplus from the Social Security trust fund was used to retire the public portion (as opposed to intragovernmental portion) of the national debt. That's responsible behavior, particularly compared with the Republic use of the Social Security surplus to paper-over massive debt.

The main point of the Supply Side faith is this: Cutting taxes always raises revenue. Not even Laffer himself believes that. His famous curve has two ends which both point downward. Reagan's faith in Laffer was based on the 90% tax bracket he lived under during his Hollywood days. (Reagan lowered the top rate from 70% to 28%.) A 90% tax rate is certainly a disincentive to work, and just as certainly puts any tax cuts on the far end of Laffer's curve where they do, dramatically and demonstrably, increase revenue.

One can not reasonably expect the same kind of bang for the President Bush's much less dramatic tax decrease, since Reagan's cuts surely put us somewhere closer to the flat top of the Laffer Curve where changes one way or the other make less difference. Certainly, the evidence indicates we're at that point. I'll use as an example the Clinton tax increases.

The increases were touted by Clinton as part of a deficit reduction package, and not a single Republican voted for them. The increases would, according to Republican orthodoxy, crush the economy. Instead, as the deficit went down (on a percentage basis, just how you like it) the economy took off. In short, raising taxes increased revenue.

Then, there's the spending side. Interesting that you chide Clinton for "dramatically increasing long-term spending commitments." Whatever Clinton did on the long-term spending side, it's nothing compared to what President Bush has done, and I look forward to your moral outrage at Republican irresponsibility. Real outrage, Pursuit, not just a cynical "they're all politicians" resignation. You know, they way you call me things like "unhinged" for disagreeing with your orthodoxy. Let it flow, Pursuit, at President Bush and all of those in Congress and the Party who went along with him.

Finally, to get to a topic that I happen to know a little something about, there's the matter of "unrealistically" cutting defense spending. You're forgetting that Clinton took office just after the Cold War ended. One might expect, at the end of a long-running, capital-intensive stand-off, that expenses would go down. Whether those decreases were "unrealistic" is a matter not just of military capability but of national vision. Clearly, given the propensity of the Republican Party under President Bush to solve every problem using military means, Clinton's cuts were "unrealistic." On the other hand, given a policy of less belligerence, Clinton's defense spending -- approved by a Republican Congress, by the way -- might seem sensible. We do, after all, still spend more money on defense than the rest of the world combined.

Growth in interest on the debt is choking off the federal government's ability to do other things. . .

Good.

. . .while demanding that taxes be held high.

It's nice to see a Democrat concede that taxes are high. So how come your party wants to raise them even further?

Tom,

My intention is not to agree with Bush's spending spree - I'd like to see govm't programs cut far more than I suspect you would - but you're original post and response are a miss mash of opinion and uninformed facts. Stop with the Sullivanist rants, and do a little research.

You're first point is that the interest payments are choking off the government's ability to spend on other things. What programs have been cut because we must pay the interest? This is, in fact, where percentages do count, because as the economy grows, so does our ability to service the debt.

Secondly, Clinton was not "paying off the debt". National debt grew every year of the Clinton administration. Every. Single. Year. Check out the facts. Now you make some bizarre distinction between public debt and intragovernmental debt which makes no sense. The fact is that Clinton paid off some public held debt, but every year increased intergovernmental debt far more than the public debt payoff. In other words, total debt increased! Why you think this is responsible behavior is lost on me. Do you some how believe that all those bonds that were purchased by the social security administration will not need to be paid off? I'l be interested to see how you feel about that when we're leaving next door to each other in the Florida trailer park. This, my friend, is not responsible behavior it is a shell game. Clinton merely sold more bonds to you, than he did the Chinese.

It is amusing that you claim that passing bills with increased spending down the road is a Republican approach. Another Sullivanist slur which adds nothing to the conversation. First, all politicians do this, and secondly your fiscal hero, Mr. Clinton, did just that with the social security fund bond purchases! Sure long-term spending under Bush has gone up, but isn't this due to programs your beloved Dems wanted such as the Medicare drugs prescrip program? Please don't back into a corner defending Bush on this one, but the fact is that were it not for Bush, your party of fiscal discipline would have spent more, and now they are trying to nationalize healthcare. Seems I remember your Mr. Clinton attempting the same thing.

Finally, I won't argue with you on defense spending, as this is a matter of policy and you clearly prefer big govm't programs over maintaining national defense capabilities at the level I would. But again, look at the facts. For a guy who "did nothing compared to what Bush has done" you might be interested in charting Clinton's domestic spending increases that were financed by the "peace dividend". Oh, and you might want to look at Mr. Bush's defense spending in historical context of what we've spent in other wars. It's a bit surprising - very efficient guy that Mr. Bush.

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