Yes, Deficits And The Debt Matter

Here’s a snippet from my local paper’s liberal Sunday columnist:

Maybe the worry is how to pay for the deficit. Turns out it’s fairly easy. The government just borrows what it needs. The total borrowings of the U.S. government since the 1770s, currently about $18 trillion, is called the national debt. This is where some confusion can come in. The deficit is much different from the debt. Deficits happen each year, but the debt is the sum of deficits from many years. It’s too bad both words begin with D.

And is the columnist worried about this? Nope.

The government has the power to legally confiscate our wealth to pay its bills. That’s called taxation. I wish I could tax my neighbors to pay my bills, but I can’t. The bottom line is the national debt doesn’t need to be paid back anytime soon. It has been around since George Washington’s time.

Ho-hum, nothing to see here.

Except for the real-world consequences of continuous government growth via crowding out private investment:

Andrew Mountford and Harold Uhlig provide a quantitative estimate of these costs. They calculate that a 2 percent increase in government spending will—under the best scenario—lead to a less than 2 percent increase in GDP in the short-run. Eventually, however, the tax increases needed to finance this spending will result in a more than 7 percent contraction in GDP.

The CBO has also estimated the cost of crowding out over the long run. By their estimate, crowding out will reduce inflation-adjusted gross domestic product per person by 6 percent in 2025 and by 15 percent in 2035. For the economy at large, this means an economic cost of $1.2 trillion in real lost economic activity in the year 2025, more than the cost of the wars in Iraq and Afghanistan combined. For individuals, this will mean lower incomes and less opportunity.

These are the consequences of continuing to run high deficits and letting our debt pile up. Sorry, but this sounds like a “major concern” to me.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: