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House Minority Leader Dick Gephardt has expressed the opinion that a 1 percent of GNP deficit per year would provide, "more public investment in resources that help make people more productive." While the goal of public investment is laudable, going further into debt to achieve it is counterproductive.
During President Clinton's administration alone, (fiscal years 1993 thru 1997), the federal treasury has paid out more than $1620 Billion in interest. Had there been no debt to service, imagine what that money could have done. One year's interest on the debt could have improved or repaired every American highway and bridge. The next year's interest could have built an expanded system of public transportation, bullet trains, an improved air traffic control system, and upgraded drinking water quality nationwide. The next year there would have been money to build Space Station, a moon base, and send humans to Mars. With all that paid for, we would still have $300-400 Billion per year available to invest in other important projects, including health care and medical research.
When the debt is increased or interest rates go up, the cost of servicing our nearly $5500 Billion debt will increase, pulling money out of the public sector and depositing it into private accounts. Politicians who profess a desire to invest more public money into public improvements will be disappointed. Money which would have been available for public investment will be taken from the Treasury and paid as interest into the bondholders' accounts. That money will then be invested where the bondholders will profit. As a result, the public purse will continue to be drained, there will actually be less money available for public projects, leaving the public with a heightened feeling of impotence.
Adding 1% of GNP to the debt each year will increase the interest cost and diminish the public's ability to pay for needed improvements. It also does something else. It allows those with vast wealth to invest some of that money where it is has a guaranteed income with no risk of loss. Bondholders of American debt do not want the debt to be repaid. They want it to be rolled over. That debt allows them to earn a modest sum ($355 Billion in FY 97 alone), preserve their capital, and gives them a large political influence.
If bondholders are unhappy with the direction of government spending, they can reclaim their money from the Treasury. The government can always refuse to repay the money but, once there is a default, the cost of future borrowing will be greatly increased. Alternately, the government could modify its behavior to the liking of the bondholders. We have seen that happen to many other debt ridden countries who asked the World Bank or International Monetary Fund for a loan. Loans are granted only when the bankers have been assured of modified fiscal behavior. The effect of that "modified behavior" sometimes has dramatic effects on the living standards of the citizens in the borrowing country. As an example, we have only to look at recent diminished living standards of South Korea, Thailand, and Mexico.
We are the Americans. We are capable of accomplishing anything we set as a national goal. That includes attaining an impossible debt and national ruin. If that is what we ask for, that is what we can accomplish. It is all up to us via the representatives we elect. Choose carefully.
Lee Presser
Jan 1998
Here is some raw data on which to contemplate:
