back to 1835!

Max Sawicky sawicky at
Tue Aug 3 14:31:38 PDT 1999

Nathan, wandering off the reservation . . .
. . . Now, we sure as hell don't want to be running surpluses if a recession hits, and I agree with Max and others than in an ideal world, spending the money on job creation and social services would be preferable, but given political realities paying off the debt and reducing payments to rich bondholders does not seem like a terrible thing at the time when GNP growth is high.

As things stand the budget is projected to be in surplus for the next ten years, after taking out cyclical effects. In other words, the "fiscal stance" is contractionary. To MAINTAIN employment, either spending or tax cuts would be called for in this period unless we think such policies are irrelevant to employment. (Though deficits decreased under Clinton, structural deficits persisted until 1997. So fiscal policy was still stimulative thru '97, on balance.

>From an employment standpoint, some tax cut is
definitely better than unmitigated surpluses. Obviously we'd prefer some cuts to others.

If you think public debt benefits rich bondholders, you might like to answer the question of why the Administration is going ass-over-teakettle to eliminate public debt, with the tacit approval of a lot of Republicans. Don't feel bad if you don't know the answer. Nobody on PEN-L does either, including me.

If bondholders didn't have bonds to buy, they'd buy some other asset -- somewhat less safe perhaps, perhaps also with a higher return. On balance they would not be appreciably richer or poorer in either instance.

If you dislike the evolution of the tax system, debt finance beats tax finance. Public debt expands the public sector.

Adverse changes in equality over the past 20 years are measured predominantly in pre-tax terms. The tax system doesn't change the picture very much, relatively speaking. At the same time, austerity on the spending side worsens equality. Austerity is more likely, as long as the option of debt finance is depicted in negative terms.

. . . Less debt means less interest payments, which opens up more funds for other programs if we ever to get back a majority for serious social justice spending. But since we dont have that majority, paying off the debt looks better than a lot of other alternatives. --Nathan newman

If you forego a dollar of spending this year, you have an extra six cents every year after that. Put another way, if we countenance the decimation of domestic programs over the next ten years to the tune of, say, $750 billion, we could "save" roughly $150b in interest payments over the same period. We've been hearing since 1984 that once we get rid of the deficit, spending can increase. Now the refrain is, once we fix social security, yadda yadda. I predict that if we did "fix" Social Security, we would next be told we can't increase spending until we "fix" Medicare. There is no end to this!

You can't increase spending by spending less. All you can do is change the timing of spending.

If spending was absolutely debarred, some tax cut would be worthwhile for employments' sake. Problem is that advocates are so snake-bitten by fear of tax cuts that their advocacy of spending is utterly anemic.

Remick, adding gasoline to the fire:
>> . . . Nathan's point seems well taken. Given that we're living in a
fool's paradise and there is no appreciable demand for spending on job creation and social services, what *is* the objection to paying off on the debt until the (ever nearing!) recession hits? Wouldn't this mitigate any adverse inflationary impact of deficit spending when the recession does occur?

Actually polling shows support for spending, just like it did for single-payer national health insurance. Congress is not complying, for reasons you can appreciate.

I can't see any connection between public debt levels and inflation. If there's a recession in 2001 and a timely response, the level of appropriate fiscal stimulus (deficit spending, stemming from either spending increases or tax cuts) would not depend on debt levels. I would grant you that political opposition to deficits, irrational though it may be, would be greater if prevailing deficits were higher or surpluses lower.

It would take a pretty big tax cut to eliminate projected surpluses -- much larger than any proposed thus far. If deficits are not "too large" (which to the public might mean greater than $150b), political support for stimulus is plausible to me.


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