Deficits, the National Debt, and Economic Growth: What many politicians don't want you to know.
Debt is the wrong enemy.  Growth is our forgotten friend.
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"If highly developed economies do not continually find ways to supply capital for new work in their cities, they too must stagnate and then their wealth must inevitably begin to dwindle."
--Jane Jacobs

Letter to:

Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515
Sept. 16, 2000
Subject: An appeal from the private sector

Why Burn Our T-Bonds?

Dear Members of the House Ways and Means Committee:

On Thursday, Sept. 14, 2000, you voted unanimously to allocate 90% of the 2001 federal surplus to paying down the government's debt to the public. As a private sector taxpayer, I must protest strongly. That vote demonstrates that politics has trumped prudent financial management policy - and that goes for all of you, regardless of your individual macroeconomic or political leanings.

Some of you are Keynesian income-redistributors. Some of you are neo-classical budget balancers. A few of you might even be supply-side growth advocates. In any case, by virtue of Thursday's vote, I must conclude that all of you have sacrificed your principles to politics. All of you apparently assume that the voting public is too ignorant to understand what really happens when the government "pays down" its debt to the public.

"Debt to the public" should be a tipoff phrase. For every debt, there's an asset, and in this case, those assets are the T-bonds, T-bills, and T-notes held by the public. To "pay down" the debt, you have to tax $3.5 trillion dollars out of John Q. Public's left pocket, in order to buy back the T-bonds, bills, and notes out of John Q. Public's right pocket. It is the equivalent of passing a law that forces John Q. Public to burn the Treasury securities in his right pocket (i.e., in his pension funds, 401K's, etc.).

That, folks, is deflationary. John Q. Public can no longer use the Treasury securities to collateralize growth-inducing loans. Debt paydown reduces John Q. Public's financial assets by the amount of the Treasury securities he no longer would own: $3.5 trillion. To paraphrase the late Senator Everett Dirksen, a trillion here and a trillion there, and pretty soon you're talking some real money.

You are slamming the door shut on economic growth. Whether you believe that growth is induced primarily by demand (Keynesianism) or supply (Reaganomics), you are killing the private sector's prospects for continuing the greatest-ever expansion of our country's wealth. You are doing our country's economy a huge disservice - because you apparently think the voting public is incapable of understanding the difference between public debt and private assets. Politicians seem to have convinced the general public that "government debt is bad," and "government interest payments are bad." They have avoided explaining the incontrovertible fact that a public debt is a private asset, and that government interest payments are private sector income.

Isn't it time to do the right thing, even though it conflicts with political rhetoric?

Reducing the "debt burden" is a popular theme. However, the "debt burden" is best defined as the ratio of debt to GDP (Gross Domestic Product) - Keynesians and Supply-siders both understand that fact. A decreasing debt ratio means a decreasing "debt burden." Once we admit to that, simple arithmetic shows that one can decrease the "debt burden" by holding the numerator (debt) constant, while increasing the denominator (GDP). Moreover, that is precisely what has been happening in our booming economy: debt has been growing, but GDP has been growing faster. Keynesians and Supply-siders have an honest disagreement as to whether that growth is due primarily to demand or supply, but they both agree that GDP growth is of primary importance.

Cutting the numerator of the debt-to-GDP ratio is NOT the only way to decrease the government's "debt burden"; in fact, it is deflationary. It risks causing a GDP contraction that outpaces the debt reduction - ironically producing the opposite of the intended effect. Yet, all of you voted for cutting the numerator. You should be ashamed of yourselves.

I am an advocate of GDP growth, as are many of my friends on both sides of the macroeconomic debate. Sadly, your debt-paydown policy will, in effect, force those of us in the private sector to burn our Treasury securities, thereby stifling growth prospects. At worst, your policy will lead to a deflationary depression. God help us.

Please reconsider your new, ill-conceived policy of burning the private sector's Treasury securities. You are about to kill the greatest expansion of wealth by any nation in the entire history of civilization - all because you think the public that has created all that wealth is too stupid to understand prudent economics. By reconsidering, you'd have a chance to go down in history as statesmen. By refusing to reconsider, you risk going down as mere panderers.

For the sake of our nation, I hope you choose the former.

Steve Conover, Taxpayer

End of this article
Last update of this page: June 24, 2001
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