...the laying of taxes is the power, and the general welfare the purpose for which the power is to be exercised."
Thomas Jefferson.

Wednesday, January 26, 2011

Keep The Debt In Perspective

I am much relieved to read this, the whole article is here

Proportionality and the national debt
The projected $70 trillion debt referenced above is accumulated over the next 75 years.
But how does it compare to the nation's ability to pay? That is, what proportion is $70 trillion to the 75-year national income?
Just like the prospective homeowners, we don't know how fast America's national income will grow, but we can estimate high, low and "best guess" numbers.
At a "pessimistic" economic growth rate of zero percent, the gross domestic product will total $1.05 quadrillion over the next 75 years; at an "average" 2 percent rate, the GDP will total $2.46 quadrillion; and, at an "optimistic" 3 percent rate, the GDP will total $3.95 quadrillion.
Comparing $70 trillion to these three numbers, we see that debt as a percent of the GDP varies from 7 percent at zero economic growth to 2.84 percent at 2 percent growth and to slightly more than 1.77 percent at 3 percent growth. Such computation demonstrates that while the projected $70 trillion debt figure represents an important problem, it is also a problem that is quite manageable. Sure, let's get better control over the national budget, but there is no need to panic or take sudden actions with Social Security, or continue the neglect of our roads and rail networks.
Omitting information is misleading
In national budget discussions, projecting large, scary numbers such as $70 trillion should not be introduced without placing them in proportion to the economy's projected ability to pay. Omitting this second factor is to introduce false and possibly misleading information, to present a deceptive picture.
During the recent debates over the extension of the Bush-era tax rates, and the current debate over raising the debt ceiling, the urgent economic challenge of stabilizing the economy at reduced unemployment rates seems lost in the din over the 75-year projection of the national debt. Three debt-reduction commission reports made alarming assertions without using basic arithmetic to properly portray a sense of proportion.
Because much of the general public has only a tenuous understanding of such large numbers, we propose the following rules for the commentariat — reporters, politicians, pundits and professors.
Rule No. 1: Never use large debt numbers without stating the time period in which they are incurred and the corresponding proportion to ability to pay.
Rule No. 2: Never repeat statements made by others that fail to adhere to Rule No. 1, unless it is to include the missing information.
Rule No. 3: Report all failures to adhere to Rule No. 1 as a failure of professional ethics.
Charles O. Kroncke is associate dean in the University of South Florida College of Business. William L. Holahan chairs the department of economics at the University of Wisconsin-Milwaukee.

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