Re: [Pen-l] Vulnerable logic in Dean Baker's argument?

[Doug Henwood <dhenwood@xxxxxxxxx>]

On May 18, 2009, at 2:19 PM, Max B. Sawicky wrote:

> You seem to imply that the availability of Gov securities reduces
> consumption
> of the rich.  If not, if their saving is no different, how are they
> richer?

"The rich," at least the American rich, haven't been financing our  
deficit. Their holdings of Treasury securities ex-savings bonds, went  
from 6.6% of GDP at the end of 1999 to 0.6% at the end of 2008. The  
rest of world sector financed almost 80% of the increase in Treasury  
debt.

> Re: the alleged debasement, the initial borrowing finances something.
> Borrowing
> v. taxes just changes when the bill is paid.  Present value of Gov
> spending is more
> likely to be increased by the use of borrowing, not reduced, since the
> bill is
> presented to future, richer generations.

You're ignoring debt service, which was over 4% of GDP in the Reagan  
years, and a rising debt/GDP ratio. It was 32% of GDP when Bush took  
office, and 44% when he left. It's likely to rise past 60% fairly soon.

And what has this debt been financing? Tax cuts for the rich and a  
military buildup. What will the future increases in debt finance? A  
stim program, yes, but also lots of bank bailouts. None of that makes  
us richer, or gives us any reason to be optimistic about the greater  
wealth of future generations.

Doug
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