Why Pay Down the Debt?


If I understand Max correctly, our main points of disagreement seem to be the following:



A couple of times, he challenges the truism that paying off debt now will make it easier for future taxpayers to maintain or enhance public programs--just as Reagan's big debt buildup in the 1980s made it harder to maintain public spending thereafter. But to his credit, he quickly backs off this indefensible assertion, so I'm not going to restate the obvious.



He argues that our kids will be rich enough to pay for our Social Security benefits and service, whatever public-debt obligations we happen to leave them. I'm less confident, and think both we and our kids will be better off if we can reduce the government's future interest costs.



Max admits that the economy is doing well these days, as reflected by the lowest unemployment rate in 30 years. But he suggests we could do even better with a looser fiscal policy. (He sounds more Kempish than Keynesian here.) In contrast, I think that tight fiscal policies have probably helped the economy in the 1990s by keeping interest rates down and boosting investment. In fact, the last time unemployment was lower than now was back in 1969, the year the federal government ran its last budget surplus. Over the past 20 years, there's been a notable correlation between big federal deficits and high unemployment, on the one hand, and between relatively small federal deficits (or, recently, surpluses) and low unemployment, on the other. There's a chicken-and-egg issue here, to be sure, but causation probably runs both ways.



Max believes that some public investments can have a bigger payback than private investments. He'll get no argument from me on that as a general principle. But not all public investments are good ideas, and I think the good ones ought to be financed without returning to the days of big deficits.



Perhaps fairly, he criticizes me for not being very specific on how much debt I'd like to pay down, although he's pretty vague himself about how much in the way of surpluses or deficit spending he'd like to see. So let me offer this: Assuming the economy doesn't go south, I'd like to keep the Social Security, Medicare, and federal-employee-retirement trust funds off limits over the next decade, and balance the rest of the budget.



Finally, we agree that there's probably an insect simile or fable that applies here. But rather than metamorphosis, I'd say our differences are illustrated best by the story of the ant and the grasshopper. ยค

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