Don’t get confused by the size of the numbers at stake. Pay attention to the ratio of cumulative debt to the size of the national economy. That will tell you how easily we can manage the debt.
The debt-to-GDP ratio right now is close to 53%””still in the manageable zone. But after the boomers hit retirement, it will soar. One of the most telling figures in the president’s budget document is the Congressional Budget Office’s projection that by 2020 the debt-to-GDP ratio will be 77%, assuming no entitlement reforms. That’s bad news. The ratio is moving in the wrong direction. At some point, the dollar could tank and interest rates explode.
Let us remember that at the end of the Second World War, when the ratio of the USA’s deficit to the size of the economy was FAR LARGER than today, the key to recovery was increasing demand and increasing productivity. Because American consumers and businesses are continuing to cut back their spending, if it then takes the federal government to be the spender of last resort, better that risk (for purposes of growth) than the guarantee of economic collapse that comes from insufficient demand.
Henry, Japan played that game for a decade during the 90s and it did nothing for them as far as spurring growth and employment. On the contrary, consumers looked at the government debt and their shrinking savings and pensions and saved all the more instead of spending.
The only thing that has really saved Japan is that it is an export economy. The US does not have that luxury.
Henry, the actual figure that I have heard repeatedly places the national debt at 125% of GDP in 1946.
However, there are significant differences. For one thing, if I recall correctly, the highest marginal tax bracket was 70% and may have been as high as 90%. Most of the debt, I believe, was held by Americans. As far as any kind of industrial production, the United States was pretty much the only game in town. In any event, I would like to know if there is any kind of consensus among economists concerning the differences and similarities between then and now, and if so, what that consensus might. I doubt that such a consensus exists, but I would imagine that there are two or more fairly well-defined positions on the subject, and I wonder what they are.
There are two monumental differences between the late 1940s, during which:
a) Personal savings and corporate retained earnings were immense because during the war there was little available to spend money on, and
b) Pent-up demand was huge, the result of rationing and diversion of production to military applications.
… and our era, in which:
a) Personal savings and corporate cash reserves are almost non-existent, and
b) There is essentially no pent-up demand because people bought everything they wanted on credit over the last few years.
Furthermore, in the late 1940s the federal debt had been rung up for a war which was over, and spending quickly returned to pre-war levels. Today, the bulk of federal spending is non-discretionary, and will not (therefore) go away. Additionally, the current administration is adding one entitlement program after another, so that the rapidly increasing debt becomes a permanent commitment of the American taxpayer.
It’s also fairly well known that spending by government is rather ineffective because it produces nearly nothing and is consequently not multiplied through the economy compared to personal or corporate spending.
Yes, many things are different today for America in the world economy than things were in 1946. Ever since the Reagan and “Republican Revolution” years we have under-regulated and under-taxed ourselves, allowed our manufacturing sector to vanish into foreign countries, built less and less desirable consumer goods, and allowed the growing impression, inflaming sentiments against us in the Middle East, that Israel can get away with anything. Let’s start with raising all marginal tax rates 5% across the board, at least, to help pay for our expensive (sadly necessary at this point)military enterprise.
Obviously as a free-market, individual liberty, Constitutional conservative I disagree 100% with #5.
Just asserting otherwise as usual . . .
to elaborate on #4, in the 1940s we had no programs like Medicare or interest on the debt to suck $$ out of the budget. Plus, like Japan, 1940s America was a big exporter, sadly we are not that today (even with a weak dollar!).
until we means test social security/medicare, de unionize all government workers, void pension agreements, eliminate or drastically reduce unnecessary federal agencies like Education, we’re not going to make any real progress….
[b]Under-regulated?[/b] Thanks for my morning laugh. Regulation has grown like a cancer on the American economy for many decades, which is a prime reason manufacturing moved overseas. Even Reagan could barely slow it down. In 1981 there were six federally-mandated grades of gasoline; today there are well over two hundred. In the meantime, due to regulations, Americans haven’t built a new oil refinery since my now-greying son was in diapers.
Our entire Constitution contains 4400 words. Federal regulations surpass 28,000 words, just for [i]CABBAGE[/i]. Have you ever had a citation from OSHA because the required “safety” paint was ever-so-slightly the wrong tint of yellow? Women braiding hair at a Renaissance Festival have been fined because their activity violated hairdressing regulations. Utterly !clue.
[b]Under-taxed?[/b] Corporate taxes in America are the fourth highest in the entire world, surpassed only by Barbados, Guyana, and Syria. US corporate taxes are 5% higher than Venezuela, 9% higher than Cuba, 11% higher than Vietnam, and 14% higher than China — the last remaining outposts of communism.
There are only a few dozen countries with higher [i]personal[/i] income tax rates, which makes the US, at worst (from #5’s PoV) somewhat over-taxed compared to most other nations.
[b]Expensive military exercise?[/b] Do you mean the one that has allowed Europe to pretend it need spend nearly nothing on its own defence? The one that enables and enforces free commercial access to the seas for all? Whose last five conflicts — Kuwait, Somalia, Kosovo, Afghanistan and Iraq — have had as their primary purpose to protect [i]Moslems[/i] from invasion, chaos, genocide, and tyranny?
Doctrinaire repetition of far-left talking points without reference to facts or context is indicative of rather childish thinking.
The far-right can have the same problem with people who suggest we should use all our resources as fast as possible because Christ’s gonna return any day now; or women shouldn’t be allowed to vote; that we should deport all Moslems; and that the yellow line in the middle of the road is excess government interference with individual choice.
All right, we will probably never agree if the problem is too much government or too little – but I do agree that the yellow lines down the middle of the road offend my sense of personal freedom and have got to go.
Bart (8): What’s the sources on your numbers, especially on corporate and personal taxation? I don’t really care how high corporate taxes are, and as far as personal taxation goes, my understanding is that an American taxpayer, on average, pays about 50% in taxes when all is said and done. I also understand that European citizens in such places as Sweden pay about the same percentage, but the Swedes get a lot more bang for their buck in terms of healthcare, education, etc., and the government runs a SURPLUS…
I agree, BTW, that the United States is paying disproportionately for the world wide security.
OECD Centre for Tax Policy and Administration, and the Federation of International Trade Associations were my main sources of taxation data.
By the way, based on household income, if it were a US State, Sweden would rank at or near the bottom, even accounting for health benefits and so on. The average Swede has roughly the same economic numbers as the average African-American. These discouraging data were published by Robert Gidehag, Chief Economist of Handelns Ultredningsinstitut just a few years ago.
IMF data from 2001 show that U.S. GDP per capita in dollar terms was 56 percent higher than in Sweden while in 1980, Swedish GDP per capita was 20 percent higher. Sweden is the developped-world leader for risk of sexual assault, and very near the top in property theft. Jews in Sweden [url=http://www.israelnationalnews.com/News/News.aspx/135795] now fear for their safety[/url] and are fleeing.
BTW, Sweden has just about the same population as North Carolina, so it might not be a pertinent comparison in any case.
Bart, on tax rates, are your numbers based on nominal rates or effective rates? Also, I don’t think the non-economic risks of living in Sweden have anything to do with its economic condition. Sweden is but one example. You don’t like Sweden, try Denmark or Germany.
RE: “I don’t really care how high corporate taxes are . . . ”
Right because corporate taxes have absolutely no relevance or connection to our individual lives, as to the cost of products or the ability of said corporations to hire more workers. It’s just a number that mysteriously disappears from corporate accounts which does not have to be “made up” through any other harmful actions that might impact me. Because that’s just how taxes work. Numbers taken away from accounts, that the government can use far far more effectively [tee hee] than the silly corporation or individual.
[roll eyes]