I cannot understand how we might possibly keep going with federal deficits--not over five or ten years, but over an entire generation! What could be the logic behind this madness? Click here for an analysis related to the graph on the left.
Robert Reich offers this explanation:
First, some background: Deficit and debt numbers mean nothing in and of themselves. They take on meaning only in relation to something else. And the most important something else, in terms of deciding whether the nation can afford such deficits or debts, is the size of the national economy.Yes, sounds good in theory. But, while I don't have the data handy, wasn't it also the case that in 1946 taxation rates were much higher, and entitlements were much lower? Contrast that with the current anti-tax but gimme, gimme mentality. It does not make sense that growing the economic pie will also magically make the deficits less scary.
Pay close attention, in particular, to the debt/GDP ratio. True, that ratio is heading in the wrong direction right now. It may reach 70 percent by the end of 2010. That’s high, but it’s not high compared to the 120 percent it was in 1946, after the ravages of Depression and war.
Over time, the basic way America has reduced the debt/GDP ratio is by growing the U.S. economy. GDP growth makes even large debts manageable. When the economy is cooking, more people have jobs and better wages. So they pay more taxes. And they require less unemployment assistance and other social insurance. That’s why it’s so important now, in the depths of depression, that government, as purchaser of last resort, steps in and runs large deficits. Without large deficits this year and next, and perhaps the year after, the economy doesn’t have a prayer of getting back on a growth path, and the debt/GDP ratio could really get ugly.
Can't make any sense of this madness ..... oh well!