National Debt Thread II: Attack of the Fiscal Responsibility

[Llamalandia]

We should focus on reducing debt-to-gdp a small amount, if we wanted to reduce debt rather than the $ amount. For example, increasing the amount of debt by 2% each year while the economy grows by 3% each year isn't really a big deal. We wouldn't be reducing the nominal amount per se, but as a % of GDP we'd be in a good situation without harming economic growth, and we'd be prepared for any future economic shocks.

This^. An alternative to reducing the deficit is to grow GDP faster.

Oh you have a way of doing that? I'd love to here the specific details of Nobel prize deserving economic plan which can give us double digit gdp growth long term. I mean really that's pretty freaking impressive so how do we do that exactly.

[Geilinor]

This^. An alternative to reducing the deficit is to grow GDP faster.

Oh you have a way of doing that? I'd love to here the specific details of Nobel prize deserving economic plan which can give us double digit gdp growth long term. I mean really that's pretty freaking impressive so how do we do that exactly.

It doesn't have to be double digit, it just has to be what it was before the recession. You do know how high the deficit is right now? Just 2.8%. 3% growth isn't double digit. http://www.bloomberg.com/news/2014-04-14/u-s-deficit-cut-almost-one-third-to-492-billion-cbo.html

[Atlanticatia]

This^. An alternative to reducing the deficit is to grow GDP faster.

Oh you have a way of doing that? I'd love to here the specific details of Nobel prize deserving economic plan which can give us double digit gdp growth long term. I mean really that's pretty freaking impressive so how do we do that exactly.

Do you understand math?

If we increase the national debt at a lower rate than GDP increases, the national debt as a percentage of GDP will fall. If we spent more money on R&D or social spending, or we had a big infrastructure program, GDP would increase as a result of spending to stimulate the private sector.

3% growth isn't double digits.

True but its not all just accounting tricks. For instance we raided the ss trust fund or lock box. We have to actually pay that money back, otherwise oops no money to pay out social security benefits with. Or else we have to raise taxes elsewhere ie use income tax revenue to pay off the as debt which effectively would make the borrowing a backslid way to force a tax increase on everyone.

I don't understand what the big deal is with that. We can just raise the social security tax to be paid on all of your income (instead of only for the first $100,000) or give it a cash injection from general revenues.

We are so obsessed with 'trust funds' that we forget general revenues can pay for things, too.

[Vetalia]

It doesn't have to be double digit, it just has to be what it was before the recession. You do know how high the deficit is right now? Just 2.8%. 3% growth isn't double digit. http://www.bloomberg.com/news/2014-04-14/u-s-deficit-cut-almost-one-third-to-492-billion-cbo.html

It also has to be nominal GDP, not real. With inflation running historically at 2-3%, that deficit is low enough to be inflated away over time

[The Serbian Empire]

I think they should have some concern, but it's not a disaster of Argentinian proportions for another thirty to forty years. There's plenty of time to right the ship before it runs aground. We might be able to get 3 to 5% economic growth and that would be enough to keep the debt from becoming dangerous.

[Post-Keynesian Economics]

It doesn't have to be double digit, it just has to be what it was before the recession. You do know how high the deficit is right now? Just 2.8%. 3% growth isn't double digit. http://www.bloomberg.com/news/2014-04-14/u-s-deficit-cut-almost-one-third-to-492-billion-cbo.html

It also has to be nominal GDP, not real. With inflation running historically at 2-3%, that deficit is low enough to be inflated away over time

Reason #38 why inflation isn't always bad.

[Viritica]

I'm not too worried about it, and I don't think our politicians should be.

[Llamalandia]

Oh you have a way of doing that? I'd love to here the specific details of Nobel prize deserving economic plan which can give us double digit gdp growth long term. I mean really that's pretty freaking impressive so how do we do that exactly.

Do you understand math?

If we increase the national debt at a lower rate than GDP increases, the national debt as a percentage of GDP will fall. If we spent more money on R&D or social spending, or we had a big infrastructure program, GDP would increase as a result of spending to stimulate the private sector.

3% growth isn't double digits.

True but its not all just accounting tricks. For instance we raided the ss trust fund or lock box. We have to actually pay that money back, otherwise oops no money to pay out social security benefits with. Or else we have to raise taxes elsewhere ie use income tax revenue to pay off the as debt which effectively would make the borrowing a backslid way to force a tax increase on everyone.

I don't understand what the big deal is with that. We can just raise the social security tax to be paid on all of your income (instead of only for the first $100,000) or give it a cash injection from general revenues.

We are so obsessed with 'trust funds' that we forget general revenues can pay for things, too.

Ok but if you raise the ss tax cap you also have to raise the benefits paid to people who make those higher incomes and it largely cancels out. Social security is not meant to be an intragenerationally redristributive program.

[Llamalandia]

It also has to be nominal GDP, not real. With inflation running historically at 2-3%, that deficit is low enough to be inflated away over time

Reason #38 why inflation isn't always bad.

Yeah unless you happen to you know have savings/investments and live on a fixed income. Inflation is just another back door tax on savers.

[Llamalandia]

Oh you have a way of doing that? I'd love to here the specific details of Nobel prize deserving economic plan which can give us double digit gdp growth long term. I mean really that's pretty freaking impressive so how do we do that exactly.

Do you understand math?

If we increase the national debt at a lower rate than GDP increases, the national debt as a percentage of GDP will fall. If we spent more money on R&D or social spending, or we had a big infrastructure program, GDP would increase as a result of spending to stimulate the private sector.

3% growth isn't double digits.

True but its not all just accounting tricks. For instance we raided the ss trust fund or lock box. We have to actually pay that money back, otherwise oops no money to pay out social security benefits with. Or else we have to raise taxes elsewhere ie use income tax revenue to pay off the as debt which effectively would make the borrowing a backslid way to force a tax increase on everyone.

I don't understand what the big deal is with that. We can just raise the social security tax to be paid on all of your income (instead of only for the first $100,000) or give it a cash injection from general revenues.

We are so obsessed with 'trust funds' that we forget general revenues can pay for things, too.

General revenues aren't supposed to be used to pay for social security though. Again it's not supposed to be an especially redistributive program. If it were republicans would have killed it long ago. Soc sec is an earned entitlement, you get out of it what you paid in while working roughly.

[Diopolis]

The US should try to pay off the debt, but it should not be the #1 policy priority. Cutting spending needs to be done anyway, and so does raising taxes. That being said, it's important not to go overboard.

[Lerodan Chinamerica]

First of all, there was no boom in World War II. That came afterwards. If that was a boom, then spending $5 trillion to pay everyone to dig holes and fill them back up again constitutes a boom - after all, that would equate to full employment and high GDP. It wouldn't change rationing, declining living standards, reduction in private investment and consumption and general stagnation of the private sector.

And secondly, paying off the national debt is important so we do not have to pay the increasingly heavy interest payments on it. When we do that, put simply there'll be less capital being taken from the private sector and as a result we'd have a more prosperous economy. Regardless, the national debt will have to be paid off eventually, because the near-0% interest rates right now will inevitably sky-rocket, meaning that paying off interest is near impossible and a huge economic crisis would occur. This is the situation that the UK will soon face, but debt crises are nothing new. Argentina's enormous national debt took it down from an economic giant to an underdeveloped nation in the span of a few short years.

Debt is bad.

[Regnum Dominae]

We spend about ~4% of GDP on defense.

We should spend around 2-2.5%, which is what NATO recommends (I think) and would put us in line with China, the UK, and France.

$350 to $425 billion would be a fair amount.

The problem with this is that most NATO states spend far below this amount. So we have to effectively subsidize their militaries.

[Llamalandia]

We spend about ~4% of GDP on defense.

We should spend around 2-2.5%, which is what NATO recommends (I think) and would put us in line with China, the UK, and France.

$350 to $425 billion would be a fair amount.

The problem with this is that most NATO states spend far below this amount. So we have to effectively subsidize their militaries.

Yeah that's true though we generally go overboard a d with us bases on NATO member country soil in Europe it kind of screwed up the treaty between NATO and Russian on the the Limitation on conventional forces. Plus screw em they need to pick up some slack and maintain they're own militarists for a change.

[Post-Keynesian Economics]

The US should try to pay off the debt, but it should not be the #1 policy priority. Cutting spending needs to be done anyway, and so does raising taxes. That being said, it's important not to go overboard.

Why should we cut spending and raise taxes?

[Post-Keynesian Economics]

First of all, there was no boom in World War II. That came afterwards. If that was a boom, then spending $5 trillion to pay everyone to dig holes and fill them back up again constitutes a boom - after all, that would equate to full employment and high GDP. It wouldn't change rationing, declining living standards, reduction in private investment and consumption and general stagnation of the private sector.

And secondly, paying off the national debt is important so we do not have to pay the increasingly heavy interest payments on it. When we do that, put simply there'll be less capital being taken from the private sector and as a result we'd have a more prosperous economy. Regardless, the national debt will have to be paid off eventually, because the near-0% interest rates right now will inevitably sky-rocket, meaning that paying off interest is near impossible and a huge economic crisis would occur. This is the situation that the UK will soon face, but debt crises are nothing new. Argentina's enormous national debt took it down from an economic giant to an underdeveloped nation in the span of a few short years.

Debt is bad.

1. You missed the point. My point was that debt was high and yet did not hurt the economy in any measurable way. If you believe it did, I'd like to see a link.

2. In what way is capital being taken from the private sector through our national debt? When we spend more money and lower taxes, there is less capital in the public sector (hence the deficit) and more in the private sector. It's simple accounting.

3. You say "the near 0% interest rates right now will inevitably skyrocket." Interest rates skyrocketing. That's a pretty big claim. Any actual reason you think this is inevitable?

4. Don't even try to compare the US to Argentina. Argentina didn't default on its debt because of the amount of its debt. Argentina defaulted on its debt because it entered a terrible recession coming not long after a nearly two decade long depression, its government collapsed, and unemployment and riots were widespread. So there was zero confidence in their ability to pay. Call me when our government collapses.

[Vetalia]

Yeah unless you happen to you know have savings/investments and live on a fixed income. Inflation is just another back door tax on savers.

Depends on circumstances; the real interest rate has historically been fairly stable because rates rose when inflation increases and vice versa. This recent period is truly extraordinary in terms of the prolonged negative real rates on savings.

[Atlanticatia]

General revenues aren't supposed to be used to pay for social security though. Again it's not supposed to be an especially redistributive program. If it were republicans would have killed it long ago. Soc sec is an earned entitlement, you get out of it what you paid in while working roughly.

No matter how much we think social security is our savings, it's not. There isn't an individual account for each person's future benefit. It's a direct transfer payment that is based on previous earnings, similar to unemployment benefits. Also, isn't 'earned entitlement' kind of redundant?

Social security is 'redistributive' - it's main goal is to prevent poverty among the elderly, paid for by the current working population. We should just raise taxes to cover future social security benefits, rather than taking the harder way out of dismantling a program that's served people will for 75 years.

We could do what the UK does with National Insurance, where we keep the current rate up to the $115k threshold (or whatever it is), then for any earnings above that, have people pay 3% or something. So your first $115k you pay 6.2%, then on your earnings over $115k, you pay 3%. That'd probably make social security very strong.

[Post-Keynesian Economics]

General revenues aren't supposed to be used to pay for social security though. Again it's not supposed to be an especially redistributive program. If it were republicans would have killed it long ago. Soc sec is an earned entitlement, you get out of it what you paid in while working roughly.

No matter how much we think social security is our savings, it's not. There isn't an individual account for each person's future benefit. It's a direct transfer payment that is based on previous earnings, similar to unemployment benefits. Also, isn't 'earned entitlement' kind of redundant?

Social security is 'redistributive' - it's main goal is to prevent poverty among the elderly, paid for by the current working population. We should just raise taxes to cover future social security benefits, rather than taking the harder way out of dismantling a program that's served people will for 75 years.

We could do what the UK does with National Insurance, where we keep the current rate up to the $115k threshold (or whatever it is), then for any earnings above that, have people pay 3% or something. So your first $115k you pay 6.2%, then on your earnings over $115k, you pay 3%. That'd probably make social security very strong.

Or we could just merge social security with the general fund.

[Atlanticatia]

No matter how much we think social security is our savings, it's not. There isn't an individual account for each person's future benefit. It's a direct transfer payment that is based on previous earnings, similar to unemployment benefits. Also, isn't 'earned entitlement' kind of redundant?

Social security is 'redistributive' - it's main goal is to prevent poverty among the elderly, paid for by the current working population. We should just raise taxes to cover future social security benefits, rather than taking the harder way out of dismantling a program that's served people will for 75 years.

We could do what the UK does with National Insurance, where we keep the current rate up to the $115k threshold (or whatever it is), then for any earnings above that, have people pay 3% or something. So your first $115k you pay 6.2%, then on your earnings over $115k, you pay 3%. That'd probably make social security very strong.

Or we could just merge social security with the general fund.

That would be ideal. I don't know why we make trustfunds for everything, like the highway trust fund - people complain that there's not enough money in it for infrastructure, but we could, I don't know, fund highways out of general revenues, or make the fuel excise tax go to general revenues???

[Post-Keynesian Economics]

Or we could just merge social security with the general fund.

That would be ideal. I don't know why we make trustfunds for everything, like the highway trust fund - people complain that there's not enough money in it for infrastructure, but we could, I don't know, fund highways out of general revenues, or make the fuel excise tax go to general revenues???

I completely agree. If we're going to demand that certain parts of the budget only take from its own revenues, how about it not be the most important things funded by the government.

[Atlanticatia]

That would be ideal. I don't know why we make trustfunds for everything, like the highway trust fund - people complain that there's not enough money in it for infrastructure, but we could, I don't know, fund highways out of general revenues, or make the fuel excise tax go to general revenues???

I completely agree. If we're going to demand that certain parts of the budget only take from its own revenues, how about it not be the most important things funded by the government.

We could fund the 'War on Terror' with a 1% payroll tax into a trust fund. Then we can see how quickly they can raise revenues!

[Post-Keynesian Economics]

I completely agree. If we're going to demand that certain parts of the budget only take from its own revenues, how about it not be the most important things funded by the government.

We could fund the 'War on Terror' with a 1% payroll tax into a trust fund. Then we can see how quickly they can raise revenues!

Though with different numbers, this actually isn't a half bad idea. Actually, it's a terrible idea. But it would make a point.

[Llamalandia]

First of all, there was no boom in World War II. That came afterwards. If that was a boom, then spending $5 trillion to pay everyone to dig holes and fill them back up again constitutes a boom - after all, that would equate to full employment and high GDP. It wouldn't change rationing, declining living standards, reduction in private investment and consumption and general stagnation of the private sector.

And secondly, paying off the national debt is important so we do not have to pay the increasingly heavy interest payments on it. When we do that, put simply there'll be less capital being taken from the private sector and as a result we'd have a more prosperous economy. Regardless, the national debt will have to be paid off eventually, because the near-0% interest rates right now will inevitably sky-rocket, meaning that paying off interest is near impossible and a huge economic crisis would occur. This is the situation that the UK will soon face, but debt crises are nothing new. Argentina's enormous national debt took it down from an economic giant to an underdeveloped nation in the span of a few short years.

Debt is bad.

1. You missed the point. My point was that debt was high and yet did not hurt the economy in any measurable way. If you believe it did, I'd like to see a link.

2. In what way is capital being taken from the private sector through our national debt? When we spend more money and lower taxes, there is less capital in the public sector (hence the deficit) and more in the private sector. It's simple accounting.

3. You say "the near 0% interest rates right now will inevitably skyrocket." Interest rates skyrocketing. That's a pretty big claim. Any actual reason you think this is inevitable?

4. Don't even try to compare the US to Argentina. Argentina didn't default on its debt because of the amount of its debt. Argentina defaulted on its debt because it entered a terrible recession coming not long after a nearly two decade long depression, its government collapsed, and unemployment and riots were widespread. So there was zero confidence in their ability to pay. Call me when our government collapses.

No no no! Point two is wrong and merely an accounting trick. Plus govt beauracracies introduce terrible inefficiencies, waste fraud abuse. It would be better to have people directly invest in private enterprise and cut out the fat bloated middle man that is the federal govt.

[Atlanticatia]

1. You missed the point. My point was that debt was high and yet did not hurt the economy in any measurable way. If you believe it did, I'd like to see a link.

2. In what way is capital being taken from the private sector through our national debt? When we spend more money and lower taxes, there is less capital in the public sector (hence the deficit) and more in the private sector. It's simple accounting.

3. You say "the near 0% interest rates right now will inevitably skyrocket." Interest rates skyrocketing. That's a pretty big claim. Any actual reason you think this is inevitable?

4. Don't even try to compare the US to Argentina. Argentina didn't default on its debt because of the amount of its debt. Argentina defaulted on its debt because it entered a terrible recession coming not long after a nearly two decade long depression, its government collapsed, and unemployment and riots were widespread. So there was zero confidence in their ability to pay. Call me when our government collapses.

No no no! Point two is wrong and merely an accounting trick. Plus govt beauracracies introduce terrible inefficiencies, waste fraud abuse. It would be better to have people directly invest in private enterprise and cut out the fat bloated middle man that is the federal govt.

How is it an accounting trick?

For example: let's say the government cuts taxes and then spends $200 billion on investing in new infrastructure.
Disposable income will first increase because of less taxes, and then the private sector will be directly and indirectly stimulated by the building of infrastructure. The private sector will spend money on things that accompany the new infrastructure, and may assume some costs of building the infrastructure.

If you look at an austerity budget, for example, let's say taxes rise and all current infrastructure programs are scrapped. Disposable income will decrease because more money will go towards taxes - and public spending will decrease - resulting in two things that factor into aggregate demand, and therefore supply and GDP, will decrease. The economy will contract, and the extra tax revenues will not go towards anything productive, resulting in even more contraction, unemployment, etc.