> From: Jim Westrich <[EMAIL PROTECTED]> > Subject: [PEN-L:8727] Re: market socialism, planned socialism, ut > At 12:05 PM 2/19/97 -0800, Robin Hahnel wrote: > > I'd start, of course, with not spending > >two thirds of my federal taxes on the military and debt service. > > This is a minor point in relation to this overall thread (which I find > interesting and useful for a Free Skool/Open University of the Left course > I will be teaching on "Alternative Economic Visions" which will include > Albert/Hahnel stuff), BUT defense spending and debt service only accounted > for 32.1% percent of the U. S. federal budget in 1996. Defense spending > only accounted for 46.9% of the discrectionary outlays. Of course, this > is official government accounting. There is so little in store in the way of new resources in the Federal budget as things stand (for political reasons, obviously) that no source should be discounted. Defense is an enormous cash cow in the budget context. As a practical matter, now is not a bad time to resume demands for defense spending reductions. The latest Brookings "Setting Nat'l Priorities" has a useful study suggesting the defense budget could very safely be brought down to $200 billion in five years, and with some cooperative agreements with Russia and others, that figure could be considerably lower. The point here is not to take as sacred what Brookings says about national security, but to exploit a proposal from a non-radical source to knock a good chunk off the defense budget. EPI or Cato could do a bang-up study of defense but it would have zero political significance. Reducing the defense budget gradually to $200 billion over five years yields $350 billion (nominal, not discounted) over the coming decade; not a bad piece of change. Robin's reference to interest bubbles up periodically on the left and always raises my hackles, not a pretty sight. The only way to forgo interest on debt is to borrow -- and spend -- quite a bit less. For instance, if the govt borrows at five percent, a savings of $1 annually, forever, in interest payments requires an up-front, one-time cut in spending of $20. Its only better to forego spending if the return on that spending fails to exceed the cost of borrowing, abstracting from macro considerations. Of course, if you think defense has no value to begin with, then the interest factor is irrelevant; whatever is without value should be cut in any event. Robin's knock on interest makes sense in light of the capacity of the Fed to push rates down and save the Fisc a bundle in the process. A related canard -- not voiced by Robin -- is that interest payments worsen the distribution of income or wealth. Clearly someone who buys govt bonds can and will buy something else if fewer bonds are offered for sale. Their wealth is affected if the borrowing causes something else to change, such as the real rate of return on capital. Govt can distribute income (e.g., interest payments) without changing the distribution of income. I'm always on the alert for these chestnuts because they are invoked by folks quite different from Robin to justify balancing the budget. Of course, when an asteroid exceeding about 2 mi. in diameter hits the earth, it will have paid to borrow after all, since much of the consequent interest payments will be avoided. In the long run we all file for bankruptcy and repudiate our debts. MBS
