Some economists have suggested that our current deficit and debt is no big deal because we've been here before and gotten out of it. For example, our relative debt burden in 1945 was greater than it is today and yet we managed to pay it off.
What is the flaw in that comparison?
Update: The answer has been posted here.
6 comments:
Oh, I don't know. Maybe the fact that back then, the U.S. had a huge proportion of the entire world's industrial base. Or maybe the fact that we didn't owe any of it to foreigners. Or maybe it's that we weren't about to run over a gigantic demographic IED coupled with unsustainable entitlement promises.
Jeff, good guess, but not quite. I'll post the answer tomorrow. Feel free to try again.
:-)
OK, here's another. In 1945, we had a reasonable chance to grow the ratio's denominator (gdp). Given the current policy landscape, that's not a given anymore.
In 1945 our money was tied to something more substantial than unicorn farts and pixie dust (hint: that something is worth over $1,000 an ounce today).
My vote would be that we didn't have a structural deficit. The debt accrued due to World War II. With the war over, the underlying reason for the deficit was removed because we stopped spending money on the war as we got the troops out of uniform. Therefor the debt could be paid down.
Quick vocabulary check:
Deficit = current gap between spending and revenue.
Debt = Accumulation of negative balance due to multiple years of deficits.
Today, the deficit continues to grow as projected spending on known programs outpaces the projected income from taxes. Deficit growth equals accelerating debt growth. This will make it much harder to pay down the debt to reasonable levels.
B-Daddy has the gist of it. I'll post the answer later today.
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