[Rhodes22-list] Steve's 44 trillion justification

[Robert Skinner]

Steve wrote:
> 
> Robert & Wally
> Try & digest this.  Since my simple Economic 101
> lesson was to hard for you 2 to understand; here is
> even a better understanding of why the deficit is not
> a problem.  If you can set aside your mineless liberal
> attitudes; the below is a simple understand of the
> deficit and a GREAT Country like the USA can manage
> not only this but several trillion more.

Thank you, Steve, for giving us something we can get 
our teeth into.

However, there are some questionable aspects to the 
article that you have cited.  I'll keep this short:

> ...         A somewhat closer examination suggests
> that there is less basis for concern than the $44
> trillion figure implied... 
> a private health care system
 >... whose costs are exploding out of control. The
> assumption in this study – that private sector health
> care costs continue to explode for the next eighty
> years – would have a devastating impact on the economy
> even if we eliminated all publicly supported health
> care programs. If health care costs are brought under
> control, then the projected deficit would be
> manageable...

Big "if."  Given that health care costs are driven by
labor costs (doctors and nurses), drug costs (now 
uncontrolled, actually supported by the administration)
hospital costs (more labor and increasingly complex
equipment), then we face a nasty choice: pay or die.
with an aging population, reduction of services covered 
by medicare may be a difficult sell.

> ...         While the prospects of $44 trillion
> deficits was attention grabbing, it is unlikely that
> many people who heard this projection had a clear idea
> of what it meant...  as a
> practical matter, this $44 trillion would be virtually
> meaningless to anyone who heard it. Apart from being
> obviously large, very few readers would be able to
> place this number in a meaningful context.

No question about that.  The number is too huge to
comprehend as a number.  Instead, perhaps it can be 
better understood as a personal debt carried by each 
person in the USA.

$44,000,000,000,000 / 293,000,000 people = $150,170
per citizen.

I believe that this approaches or exceeds the net 
worth of the average citizen.  If we are not bankrupt 
as a nation, we are not far from it.

>             It actually is quite easy to express this
> deficit projection in a more meaningful way... This
> means that its projected deficit is equal to 6.5
> percent of future GDP, implying that a tax increase of
> 6.5 percent of GDP would be needed to close the gap.
> This is far from a trivial sum, but it is not
> necessarily an impossible burden either.

First, this is is dependent on a grandiose assumption
about GDP growth, and second, the phrase "not
necessarily an impossible burden" sends chills up my
spine.

>             The tax rate in the United States has
> increased by comparable amounts in prior periods. For
> example, the federal tax burden as a share of GDP grew
> by 4.6 percentage points of GDP between 1950 and 1952,
> rising from 14.4 percent to 19.0 percent.[3] This
> increase was due to the costs of the Korean War. While
> the tax burden did decline somewhat in subsequent
> years, it remained close to its 1952 level, as defense
> spending soared due to the Cold War.

I interpret this as a ratchet effect, wherein the rate
increases by steps, and doesn't diminish after the
crisis that "justifies" the increase.

>             It is also worth noting that most other
> industrialized nations face far higher tax burdens
> than the United States.

Yes - and they also tend to have universal health care, 
etc.

> ...         Of course, the prospect of a tax increase
> equal to 6.5 percent of GDP should be taken seriously.
> But it is important to recognize that it is possible
> for the United States to bear this cost, if the
> purpose of the public spending is considered necessary
> and desirable.

That's up for debate, isn't it?

The rest of the article continues in the same vein, with
assumptions that are quite debatable, to say the least.
Whatever the interpretation, we are in deep debt, and
the solutions are not clear.

/Robert Skinner