Wishful Thinking 101: Can We Talk About the Deficit Now?

[GoreBag]

I never understood this debt thing either. I understand that money is loaned and all that, but really, when will the world banks cease to lend? And once a workable, stable budget has been hammered out, who's to say that these debts won't simply be waived?

Canada is still paying off its debts from 80's, but it's a fraction of the US' debt, and we're running a surplus, so, it's not quite the same problem there. I'm looking forward to the day when the debt is no more and we can hopefully cut down some sin tax.

[yesdachi]

I never understood this debt thing either. I understand that money is loaned and all that, but really, when will the world banks cease to lend? And once a workable, stable budget has been hammered out, who's to say that these debts won't simply be waived?

Canada is still paying off its debts from 80's, but it's a fraction of the US' debt, and we're running a surplus, so, it's not quite the same problem there. I'm looking forward to the day when the debt is no more and we can hopefully cut down some sin tax.

I wouldn’t waive debt I loaned to someone unless they did something either real nice or beat me to a pulp.

The pain with all the US’s borrowed debt is that we have to pay interest on it.

[Lemur]

I remember reading somewhere that the U.S. actually defaulted on its debt in the early 1800s, but now I can't find any reference to it. Hmm, maybe this is more of a Monastery question ...

[rory_20_uk]

Another factor to consider with debt is the interest rate that the debt incurrs. If it is low enough (i.e. below inflation), there is no incentive to pay it off, as in real terms the value of the debt decreases even with interest taken into account.

A government that pays off the debt might well be leaving the country in good financial state long term, but voters might get impatient with the failure of services to improve. Telling them that per year there will be more money in many cases is far less vote-worthy than leaving the debt and spending on things consumers can see.

[Lemur]

Good point, Rory, but think of the money that would be freed up for other kinds of investments. Money that is sunk into Treasury Bills isn't making new businesses, or funding research, or much of anything. When Gingrich/Clinton brought our budget into a too-brief surplus, other investments boomed. Just think of what would happen if we made a real dent in our debt.

[GoreBag]

I wouldn’t waive debt I loaned to someone unless they did something either real nice or beat me to a pulp.

My point exactly. Not many people can afford to really 'beat up' the US unless terrorists are involved and even then, such an extortion scheme wouldn't work very well in the eyes of the world...but I'm getting off on a tangent here. The point is that there isn't much leverage that anyone can really put on the US to force them to repay the debt.

[Spino]

The first line is depressing. The second line is hilarious. If Don C is lost in a German art film, this headline makes me feel like I'm wandering through a piece of Dada experimental theater ....

Hey, I'm the guy who said he feels like he's lost in a German art film! Personally I'm hoping this is all a bad dream and I wake up and find myself in one of those Italian art films from the same period...

Truth be told I think Don C feels like he should be somewhere on an interstate racing towards Vegas, white knuckled and hell bent on a weekend of glorious self indulgence; a brief respite from the blackened skies looming in the distance...

The scary thing about 'more money for education'? There's relatively little correlation between the amount of money spent per student and how well students do in school. If more money actually worked, I would actually support it. But Western states (Utah, Colorado, New Mexico) spend less per student than Southern states (North Carolina, Alabama) but they do markedly better. States in the Northeast have not kept up in growing the per-student spending, falling to the upper third from the top, but their test scores remain top of the list.

The problem with education in America is the NEA. Plain and simple. They don't want to require teachers to do their jobs, and incompetent teachers get rewarded along with the good ones (and there's plenty of those). Add to that so much class time is taken up with enacting social policy these days, it's very hard for teachers to actually teach.

Quit with the "social experiments" like the schools out in California making kids pretend to be Muslims for a month, and teach the 3Rs.

I understand what Dems say about standardized tests, that in the end, kids learn how to take a standardized test, not a real education. But by any yardstick, we are failing our children miserably, and if vouchers aren't the answer, fine, propose one. But "let's just give the schools more money and hope the problem goes away" is a recipe for more failure. If schools really need more money, then lay it out and explain how it will improve student performance. But don't just handwave with 'more money for education'.

Absolutely!

I would imagine that raising teacher salaries would eventually be effective in raising quality of education.

Also, according to Crazed Rabbit, private schools are the best, and what are private schools if not public schools with more money?

What? You mean like the teacher salaries in NYC? LOL! Our teachers are extremely well paid and yet our public schools are awful! Paying teachers well is one thing, holding them to high standards is another. It is extremely difficult nowadays to find truly qualified teachers and the ones that do pass the muster are easily discouraged from sticking around because the latest generation of students are spoiled silly and behave like animals in class. I've met numerous private and parochial school teachers who used to teach in public schools but left because could not handle the stress and agitation. Most preferred a massive paycut in exchange for a a more rigidly disciplined environment and a less stressful existence. To pad their income these people will get part-time jobs (preferably off-the-books types like bartending). No amount of money is going to improve America's public schools because the problem begins with the students and their upbringing and ends with a curriculum that is muddled with too much social engineering and not enough basics.

Private & parochial schools are, for the most part, better than public schools because they are devoid of the sticky issues and personnel that can plague every government institution. Private schools can set their own agenda and with the exception of Catholic schools, do not have to answer to a centralized bureacracy regarding curriculum or anything else.

[Lemur]

Hey, I'm the guy who said he feels like he's lost in a German art film!

Ooops! Sorry I misattributed that line; it was good enough to make an impression on my tiny lemur brain. I can see why you feel that way. There's something mean and spiteful in a universe where Hillary Clinton is your and Gawain's Senator ....

[Productivity]

I remember reading somewhere that the U.S. actually defaulted on its debt in the early 1800s, but now I can't find any reference to it. Hmm, maybe this is more of a Monastery question ...

I remember seeing a reference to this once in one of my macro texts, but I went looking for it (for Don C if I remember correctly) but never could find it - I'll have a look again a bit later.

[Redleg]

I remember reading somewhere that the U.S. actually defaulted on its debt in the early 1800s, but now I can't find any reference to it. Hmm, maybe this is more of a Monastery question ...

I believe that it happened during the time period around 1840 and was several states not the federal government. An article that links to a book about the subject.

http://links.jstor.org/sici?sici=000...2-Q&size=LARGE

[Aenlic]

In the debt record, there was an oddity around 1835 when the debt dropped from over $4 million to just $33K. In 1837 it was $37K, then up to $336K in 1838 and then back up to $3 million by 1839. I couldn't find a reason for the huge decrease in debt from 1834 to 1835. Except for 1835-1837, every other year since 1791 the debt has been in the millions. The national debt has gone up every year since 1929.

http://www.publicdebt.treas.gov/opd/opdhisto1.htm

Ah, upon further digging it seems the U.S. Congress debated and finally passed a bill in 1834 to pay off the national debt. That is why it shrank. Of course, the next year it sprang right back up again.

I can't find anything suggesting that the government defaulted on the debt. Perhaps it's some kind of urban legend?

Edit: Redleg posted while I was in the midst of compiling all this and happily surfing the net into all sorts of odd corners (I got side-tracked by the whole issue of Andrew Jackson and the 2nd Bank, which was occuring at the same time as the debt payoff). I defer to Redleg's post. It does seem reasonable the the various state defaults of the 1840's was the genesis of the story. I wonder how much of that 1840's problem was the result of the U.S. Treasury surplus of the late 1830's having been re-distributed to the states, leading to massive speculation and economic turmoil.

[yesdachi]

What would be the repercussion if the US started really (like a 10-20 year plan to be debt free) paying off its debt? Would other countries that held our debt get rich as heck?

[Vladimir]

OK stop , time out. How did this thread devolve into a debate on education without even mentioning the difference between discretionary and mandatory spending?

But first...Lemur: Yes we can talk about it all you'd like but if you think we're going to do anything about it ad infinitum.

The point is that the only part of the budget that can directly be controlled each year is so small that no changes we can make to it will make much difference. I don't have the numbers but I believe that this type of spending, Discretionary spending as it's called, is less than half the budget. The largest part of this budget (I think...GAH! Where's Ross Peroit when I need him?, Strike, Tex...you guys know where he is?) is military spending which you're not going to be able to cut (again) for quite a while.

Mandatory spending: Social security, Medicare, Medicaid, interest on the national debt; cannot be changed (directly) in the budget which means that it’s Mandatory spending. The only thing you can do is adjust the type of bonds you use to finance the debt. Any other option involves cutting back benefits.

The problem with the deficit is







OLD PEOPLE!

Old people vote in droves, old people get money for getting old, old people (who aren’t really that old by the way, 67) consume (an increasingly) large part of the mandatory spending. You can’t change it because, yes, it’s undemocratic (meaning that it’s career suicide for politicians).

The only way out of the problem is to grow your way out of it, and that’s something that won’t happen with (modern) Democrats in power. Someone feel free to mention the “surplus” of the 90’s…a bubble economy coupled with a gutting of the military is not sound economic policy. Another trick used in the 90's was to adjust the type of bonds used to finance the debt (see above). This created a short term reduction but a long term increase in the debt/deficit.

[Seamus Fermanagh]

Mandatory in that it is political suicide to alter them in any significant fashion = yes -- I discussed that above.

The only real means of reducing the deficit is, therefore, to reduce the budget for the military.

To accomplish this, withdrawal from Iraq and turning over most of the responsibilities in Afghanistan to the UN will be necessary. Pressure is already being applied to effect the former and the denial of Bolton's confirmation will clear the way for a less "The UN is useless" ambassador to be emplaced. Fully shifting responsibilities in Afghanistan will have to wait for a new administration, probably, but with the logistics involved in a draw-down in Iraq, that's probably a wise course anyway.

This is, by the way, the will of the people of the USA -- at least those who got off their duffs and voted. Fighting them "over there" has been evaluated as too costly in lives and treasure without producing a quick enough/decisive enough measure of success.

[Vladimir]

Mandatory in that it is political suicide to alter them in any significant fashion = yes -- I discussed that above.

The only real means of reducing the deficit is, therefore, to reduce the budget for the military.

To accomplish this, withdrawal from Iraq and turning over most of the responsibilities in Afghanistan to the UN will be necessary. Pressure is already being applied to effect the former and the denial of Bolton's confirmation will clear the way for a less "The UN is useless" ambassador to be emplaced. Fully shifting responsibilities in Afghanistan will have to wait for a new administration, probably, but with the logistics involved in a draw-down in Iraq, that's probably a wise course anyway.

This is, by the way, the will of the people of the USA -- at least those who got off their duffs and voted. Fighting them "over there" has been evaluated as too costly in lives and treasure without producing a quick enough/decisive enough measure of success.

Ok, I just spent the last 5 minutes looking "above" and couldn't see your other post.

I disagree with your assessment about Bolton: He's much less "The UN is useless" and more "The UN needs reform" which is nigh impossible to argue against.

As far as a reduction in military spending being the only "real" solution? Politically feasible is a more correct term, but not very practical. What’s total military spending per annum? Half trillion? My God, what’s the national debt up to? Doesn’t payment on the interest alone cost about two thirds as much as the entire military?

[Seamus Fermanagh]

Sorry Vlad. The post must have been in another thread, or one of those I failed to hit submit on.

I agree with you about Bolton, but he's gonna go down. The exiting liberal Republican from Connecticut is going to vote with the Dems on this and he will be rejected -- for precisely the reason I listed (valid or not).

The Democrats, when it comes to spending reductions, very much have the Clinton model in mind. He did balance the budget, using a combination of small tax increases (mostly of the hidden kind), substantial military spending reductions, and a solid economy. This (if any) is the model for fiscal responsibility that we'll see coming out of Congress and the one with which Bush will have to contend.

I don't like it, and think it stupid, but that's the way I read the tea leaves.

[Lemur]

Best quote I've yet read on the subject:

Are ever-growing entitlement and military expenditures really consistent with a free country? Do these expenditures, and the resulting deficits, make us more free or less free? Should the government or the marketplace provide medical care? Should younger taxpayers be expected to provide retirement security and health care even for affluent retirees? Should the U.S. military be used to remake whole nations? Are the programs, agencies, and departments funded by Congress each year constitutional? Are they effective? Could they operate with a smaller budget? Would the public even notice if certain programs were eliminated altogether? These are the kinds of questions the American people must ask, even though Congress lacks the courage to do so.

Required reading: Our Nation's Fiscal Outlook: The Federal Government's Long-Term Budget Imbalance.

[Aenlic]

Best quote I've yet read on the subject:

Are ever-growing entitlement and military expenditures really consistent with a free country? Do these expenditures, and the resulting deficits, make us more free or less free? Should the government or the marketplace provide medical care? Should younger taxpayers be expected to provide retirement security and health care even for affluent retirees? Should the U.S. military be used to remake whole nations? Are the programs, agencies, and departments funded by Congress each year constitutional? Are they effective? Could they operate with a smaller budget? Would the public even notice if certain programs were eliminated altogether? These are the kinds of questions the American people must ask, even though Congress lacks the courage to do so.

Required reading: Our Nation's Fiscal Outlook: The Federal Government's Long-Term Budget Imbalance.

Good ol' Ron Paul. A dedicated Libertarian. Are you turning into a Libertarian on us, Lemur?

How much you trust corporations and corporate capitalism might determine where you end up. I'll welcome you with open arms to the libertarian socialist (aka anarchist) side of the big tent which is utter distrust of government.