More Deficit Obsession Disorder. I have a recent (yesterday) post debunking the concept of Bush's "massive" deficits at http://greatguys.blogspot.com/2004_11_01_greatguys_archive.html#110070946494374275 with lots of links and easily understandable data.

The problem is that $8 trillion just sounds like a lot of money - but it's not compared to the U.S. economy and assets.

This conservative thinks the damage done to our culture and freedoms is on the spending side of the equation. Whether it's paid with taxes today or taxes tomorrow might be irrelevant as you indicate, but the damage is cumulative and consistent unless the spending is brought under control. Ain't no free lunch.

H-man - yes we should reduce the deficit. The problem is the Dems always want to do it with tax hikes instead of spending cuts. And it is annoying (or even nausiating) to watch Dems complain about the deficit given their spending history.

Besides, as noted many times the real fiscal issue is Social Security and Medicare deficits - fixing those is more important than the current deficit.

I recommend Bret's blog entry mentioned above. He makes the good point that the debt in public hands (in effect, after taking into consideration the current social security surplus) is low and heading lower.

Reducing the deficit should be automatic over the next few years, as receipts pick up with the stronger economy. But the prevailing current needs to be changed on the spending side, with some hard Republican votes.

There should be enough Democratic sound bites from the Senate floor yesterday to provide political cover.

Reducing the debt won't happen unless it is easy, like in 1996-1999.

Jim: The national debt never decreased in the '90s.

David:

Don't tell the Democrats.

Is that because the interest charges were higher than the surpluses of '97 - '00? Or because of the co-mingling of SS obligations and the budget? Or because of Clinton's decision to sell Treasury bonds of shorter duration?

"intragovernmental debt has no real effect on public debt or capital markets or interest rates"

Of course it doesn't, because the goverment won't pay Social Security in the future. Gee what a relief that is.

Or then again perhaps the government will pay the the Social security benefits required by law, in which case less money can be spent on other governmental programs or RAISE TAXES.

(it doesn't effect public debt because it is defined as not being public debt. it doesn't "effect" interest rates*** because it's an arbitrary rate, and it doesn't effect capital markets for the same reason)

*** actually it does effect interest rates because borrowers and lenders in capital markets are capable factoring in future government obligations in present day calculations.

h-man: OK, then a very, very, very indirect effect on the capital markets via factoring the eventual public debt possibly due to intragovernmental debt taking into account GDP growth between now and then, demographics, and gazillions of other variables. Especially since there are several more years of surplises so it's a pretty distance effect. In addition, keep in mind that the net present value of SS & Medicare liabilities dwarfs the current intragovernmental debt by a factor of ten.

Bret
I apologize for nit-picking the explanations given by David or yourself. Furthermore I am not suggesting any immediate financial crisis (I wish I could predict those things)

However you say

"SS & Medicare liabilities dwarfs the current intragovernmental debt by a factor of ten"

Not exactly chopped liver is it?

Jim: Yes. If you look at Bret's blog, you'll see that the national debt increased every year while the debt held outside the US government did decrease for a couple of years in the '90s. Federal government accounting would make Enron envious.

h: In theory, the deficit can have an effect on interest rates. In practice, at anything like the current debt levels it is such a small effect that it will always be swamped by whatever else is happening in the economy.

Although future liabilities for the care of retirees do seem staggering, it's useful to know that since '64, the US GNP has increased by 200%, in constant dollars.

Thus, it seems probable that by 2045, the US GNP ought to be somewhere around $ 35 trillion, in 2004 dollars.

That means roughly one QUADRILLION constant dollars of American economic activity between now and 2045; surely we can spare a few tens of trillions to pay for the old folks.