. . . if you choose to pay down the debt with the surplus now, you will have
similar funds later (assuming the surplus in current operations continues),
but by eliminating deficits and debt you will have made stronger the
argument that that money should be used to cut taxes, not for social
programs. "Mystical ideological reasons" (actually not that mystical) and
demo opposition to tax cuts will be weakened. The repugs will simply
continue on shrinking govt. This is an important answer to Nathan's
original assertion that paying down the debt now will somehow benefit
social spending later.
> >>> . . .
Whether the savings resulting from debt pay-down are used to cut taxes or raise spending depends on the prevailing politics, obviously enough. The notion that spending wins this argument is contradicted by recent experience, when reductions in deficits and increases in surplus have NOT resulted in a new consensus to increase spending now or any time soon. Running surpluses becomes habitual.
But tax cuts don't win the argument either. The public has been convinced that debt pay-down is more important than tax cuts. The Repubs are deluding themselves. They think that by finishing up their bill this week or next, and then using the rest of the month to promote it, they will put Clinton in a bind. What will actually happen is Clinton will hammer their 'irresponsibility' and tell them to blow off. Existing law will remain in effect, and the surplus will be that much larger for lack of a deal. A number of Repubs have said it is just as well, since they are willing to betray their constituents and ideology for the sake of the bond market.
Once we're in whatever the 'safe zone' is -- when debt has been reduced to satisfy everybody -- I would actually agree with Nathan that there is more chance for spending than tax cuts. But this will be a long time coming -- much too long. The ideology that is being fed by Dems and libs to block tax cuts will live on if the Dems retake the House, and we will be little better off, if at all.
Nathan's error at bottom is a failure to recognize discounting. A dollar of lost spending this year is worth more than a dollar, or as much as $1.05 gained next year, since the Gov's cost of funds is six percent, on average.
Put another way, $10 billion lost this year would only be offset by no less than $32 billion twenty years later, assuming a rate of return of six percent.
One difference between left and right is that on the left we feel there are a number of neglected public enterprises whose future importance, either quantitatively or qualitatively, outweighs that miserable six percent.
> Some lunatic wrote a piece on this in 1991 entitled
> "Up From Deficit Reduction."
>
Was that an MBS kind of lunatic?
>>
(Y)