At 08:09 PM 5/25/01 -0500 Erik Reuter wrote:
>Besides, you mentioned a surplus, which implies that the debt should go
>down numerically, not just as a percentage of the GDP. I showed numbers
>demonstrating that the debt has not been going down numerically despite
>several years of so-called "surpluses". If the debt doesn't go down
>numerically when we have a surplus, I wonder what will happen when tax
>revenues are cut due to a slowing economy and a lower tax rate?
Of course, tax cuts may well stimulate the economy out of a recession, and
reduce the impact of declining revenues.
Additionally, paying down the debt may not be such a good idea:
The traditional equation for GDP is that:
Y = C + I + G + NX
In words, that is:
GDP = Consumption + Investment + Government Spending + NX
When governments pay down debt, however, that is a use of money that does
not fall under GDP. This is especially true if you remember that much of
our national debt is held by foreigners. Consider, the government has a
$200 billion dollar surplus.
The government could use $200 billions to purchase goods and services.
That gets directly added to GDP.
The government could use $200billion to cut taxes. The fraction of the tax
cut that is consumed and invested (instead of saved), goes into GDP.*
The government could use the $200 billion to pay off foreign debtors. In
that case, GDP would decrease by that amount.
JDG
* - So why ever cut taxes at all? The most efficient way to boost GDP is
to spend it, right? Well, this is a simple model. For example, consumer
savings often get placed in banks and the stock market, where they are
coverted into investment (I). Another problem is differences in
efficiency. Government might spend the $200billion on overpriced goods, or
pork-barrell projects, or favors to constitutents, and thus get very little
return for the spending. Business's on the other hand, might invest it in
a new factory that produces $250 billion of manufactured goods, plus new
jobs, etc.
__________________________________________________________
John D. Giorgis - [EMAIL PROTECTED] - ICQ #3527685
"The point of living in a Republic after all, is that we do not live by
majority rule. We live by laws and a variety of institutions designed
to check each other." -Andrew Sullivan 01/29/01
