Centerfield

Thanks for the pointer!

I don't think comparing the US deficit to the German or Canadian deficits is a good idea unless you think Americans are prepared to accept the level of unemployment routinely seen there.

I don't think comparing the US deficit now to the US deficit historically is a good idea, either, considering the 1946 peak came after a massive commitment to public spending both after the Depression and during WWII. It's especially not considering the growth in entitlement spending commitments.

The simple fact is this: each dollar borrowed represents a dollar to be repayed with interest, and American debt service takes a larger chunk out of the overall public fisc. That's a dollar that can't be spent on medical research, on infrastructure, on military pay or equipment, on veterans' health, on education, on the president's Martian ambitions, on homeland security, or on tax relief.

Moreover, it's not just the current account deficit that's worrying, it's the trade deficit, both of which are growing. Inflation has been stable, thanks to the Fed. But it's also true that foreign investors didn't show up to buy US bonds at a Treasury auction last year, which, if repeated, is going to drive up interest rates to persuade investors to buy bonds over securities--American or foreign. (And it's not like the spend-crazy, debt-crazy Americans are going to take up the slack, since savings rates remain disconcertingly low. And even if the savings rate rose, the damage to the money multiplier as more cash were sucked out of the system would only compound the economic effect.) The president's weak dollar policy, or at least sufferance of a decline in the dollar, is leading some central bankers abroad to consider reducing or liquidating their dollar supply in favor of euros. The resulting flood of dollars into the world market, combined with a rejection of investing in US Government debt by foreign investors, would saddle the domestic economy with a traumatic rate of inflation.

The deficit does matter. It hinders our future public spending (or tax relief) flexibility. It risks our internal market stability. That we're on par with German, and below US-1946, are not reassuring. Conservative Republicans like Dan Burton recognized this in 1992: "I want to say to my colleagues that we can no longer afford to come down here and pat each other on the back and say we are all doing a great job when the country is going to hell in a handbasket. I am telling you, the deficit is out of control. . . . The American people know we are not doing a good job. They know the country is in economic chaos and they know it is going to get worse if we do not get control of spending, and all of us are going to be answerable to the electorate this November and in the years to come. . . . So I say to my colleagues let us start dealing with it today, let us not put it off any longer." 138 Cong. Rec. H7913 (daily ed. Aug. 11, 1992) (statement of Rep. Burton).

1992 annual growth in GDP was 3.3% in chained 2000 dollars; 2003 annual growth in GDP was 3.0% in the same terms. Bureau of Economic Analysis, Current Dollar and "Real" GDP, at http://www.bea.doc.gov/bea/dn/gdplev.xls (last visited Aug. 28, 2004) (using (Xn-X(n-1))/X(n-1)). Debt was 61.13% of GDP in 1992; in 2003, debt was 61.64%. See Bureau of the Public Debt, Debt to the Penny, at http://www.publicdebt.treas.gov/opd/opdpenny.htm (last visited Aug. 28, 2004) (D/G, using the BEA GDP calculations, G, against the PBD debt calculations, D). "[T]he argument that as long as we keep the debt at a certain percentage of GNP that we are going to be all right, just does not hold water. . . ." Who? Dan Burton again. 138 Cong. Rec. H7913 (daily ed. Aug. 11, 1992) (statement of Rep. Burton).

Dan Burton was right in 1992, and he'd be right now if he were standing up to Bush Administration policy now as publicly as he stood up against the Democratic Congress's (and the president's father's) policy in 1992.

(By way of disclosure, portions of this comment were taken from an article I previously published.)

If our indebtedness is ho hum, that contradicts the notion that there is a crisis in Social Security. Rather than having to raise taxes in the future to pay off retirees, we can go further into debt. On the other hand, if there is a crisis in Social Security, it must be because we're running up to our credit limits.

That's a useful chart, but I'd also like to know how fast the debt is building up, and how it projects out. Where were we in that chart a few years ago under Clinton, where will be be after 8 years of Bush, if he gets everything he's asked for.

On a purely political level the "national debt" is one of those chronic realities/problems that is used by the party out of power with which to beat those in power over the head. Historically the Republicans used this stick more often. Its like the "jobs" reality/problem. What is now unique is that after several years of a democratic administration with a budget in the black and a reduction in the national debt, we have a Republic administration that has reversed those trends.

I would assume that debt is a problem. I therefore would assume that addressing it is smart. I have to admit that a long history of ignoring national debt and balanced budgets by the Democrats makes it harder for me to hear their arguments. Yes, that's my problem but I do beleive its a legacy the Dems have to "fix" over time. At the same time, I'm surprised by the glibbness of responses I hear from this administration. "Deficits and Debts: How bad of a problem and what to do about them" is (IMHO) a significant dividing point within the Repbulican party. "Danger Will Robinson!"

Chris has it pretty well correct. The big problem with the national debt right now is not the current amount, but the trend line, and if the trend line is up the minority party will always use it to beat on the majority party. If the trend line is down the majority will claim credit. Government spending can not grow faster than the economy indefinitely. Neither can it shrink faster the economy indefinitely without eventually reducing government services.

A certain amount of government debt is actually healthy, even required. As benchmark investments in the market, T-bills are a safe haven stabilizer--as long as there's not entirely too many of them. They're also a policy tool for moderating economic swings. And if you go to the bottom of that page, you'll see the inflation meter there. Why? Because debt, inflation, interest rates, taxes, money supply, and economic growth are all highly related.

It's perfectly legit to argue about what the proper debt level for the US is today. (Theory and history indicate it's a moving target somewhere between 30 and 60% of GDP--isn't that nice and precise?) The point is that it's not really a crisis yet, but it's moving out of the comfort zone. It's a crisis that will occur if we don't choke back on spending growth vs. GDP growth and change the trend line to bring us back into the comfort zone. And yes, Rick, the pending SS deficits are a major component of projected spending growth. Look at it this way--shouldn't your mortgage be less than the value of your house? The payments a steady or shrinking portion of your available income? And if you can avoid a pending series of balloon payments by refinancing, shouldn't you? Befor your ability to take the wife out to dinner vanishes in those higher payments?

For those who recall, remember that in the late Clinton years we ran surpluses that actually reduced overall debt as a proportion of GDP. And at the time, people were getting worried about deflation, which can be just as economically ruinous as inflation, and can hurt the lower rungs of the ladder even more. Paying down the national debt too fast can trigger deflation. Running it up too quick can trigger inflation. It's a juggling act, with a dozen or more balls in the air on different orbits.

As much as I respect Dan Burton (I've often wished I lived in his state so I could vote for him!) he's more than a bit hyperbolic and mistaken on this one. The relation between the trade deficit and the budget deficit is one of the most popularly misunderstood ones there is, and they're not related in the way Burton promotes them. Trade deficits also serve useful purposes, and trade surpluses can be (and usually are) actively bad. Chart trade deficits aganst growth periods and you'll see what I mean. Once again, it's a matter of degree. Too much is bad. Too little is bad. The trick is finding Just Right. Another moving target.

The Big Point is that addressing the components of debt growth is what changes that trend line. We have more opportunity for that than most other nations. We should use some of those opportunities, while we're still near the comfort zone. Once into crisis zone, radical and pianful adjustment is required, and will occur without our being able to control it.