Members of the House Ways and Means Committee:
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.
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.
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,
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.
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.
it time to do the right thing, even though it conflicts with political
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.
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.
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
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.
the sake of our nation, I hope you choose the former.
Steve Conover, Taxpayer