NBC: America IS Fiscally Responsible

I laughed at this guy. Of course he is pure BS. I just wanted to share the
laughs.


http://news.yahoo.com/s/fool/20060627/bs_fool_fool/115141833203


America IS Fiscally Responsible
By Mike Norman Tue Jun 27, 10:25 AM ET

I recently talked about the people in the "Debt Doomsday" crowd and their
inability to see the federal government's debt and deficits in context. We
often hear that government spending is out of control or that the United
States is being "fiscally irresponsible." Few, if any, view the national
debt as a percentage of total income (GDP). When considered that way, it is
near the lowest levels ever in the post WWII period.

Similarly, when it comes to the deficit, we are never told that as a
percentage of GDP it is far lower than what we saw under President Reagan
and even smaller than where it was during part of President Clinton's first
term. Instead, we are given a bunch of nonsense about deficits choking off
economic growth or how the "skyrocketing" deficit will drive up interest
rates.

America adopts the euro!
The fact of the matter is that the United States has been anything but
fiscally irresponsible. On the contrary, America has been so financially
responsible that it could qualify for entry into the euro system if it
wanted to. And that is no small feat of fiscal conservatism when you
consider that the two largest economies of Europe -- Germany and France --
had to be accorded special exemptions because their debt-to-GDP ratio was
above the limit.

Government spending now, under President Bush, is much the same as it was
under Clinton, when viewed as a percent of the economy (though this ratio is
projected to rise by several percentage points over the next few years). It
is therefore incorrect to say that government has grown so huge. From the
point of view of spending, it simply hasn't.

Why deficits are good
While it's true that the nominal figures have grown, it's a mistake to
examine the deficit and debt numbers without some frame of reference. That
frame of reference is how big the economy has grown. To ignore the growth in
inflows (or the asset side of the balance ***) gives a totally lopsided
view. It's as if you walked into a bank to get a loan and only showed the
loan officer a list of your debts. In the real world, the banker would have
the sense to also demand to see how much money you made and a list of the
assets you owned. When it comes to the government, however, the Debt
Doomsday crowd doesn't want you to know about the income and asset side of
the balance ***. All they want you to see is that big, scary debt figure.

If the debt-to-GDP ratio does not convince you that as a nation we are OK,
then consider this: Since 1789 our country has only had a few periods when
we ran surpluses, and each of those periods preceded a major economic
downturn (the 1920s, 1999-2000). In contrast, the periods where we saw the
strongest economic growth were when we ran large deficits (1939-1944, 1983,
2001-2003). Why isn't this ever mentioned? Did the near-continuous running
of deficits cause America to decay into a third-rate power? Hardly. Deficits
have had no impact on our rise to the status of greatest economic power on
earth. Well, I take that back; they helped us finance the strong growth that
still attracts so much of the world's savings.

Another thing that most people assume is that government surpluses are
virtuous. That is flat out wrong. Government is not in business to make a
profit, and therefore forcing it to save or run surpluses as a private
enterprise or individual would is counterproductive. Just think about it for
a second. By definition, a surplus results when the amount that government
takes in -- from taxes and borrowing -- is higher than what it spends (in
other words, when it siphonsoff more money and wealth than it pumps out). It
is not recycling all or more of those proceeds back into the economy.
Surpluses, therefore, drain wealth and savings from the private sector, not
the opposite. This was clearly evident during the Clinton surplus years,
when private sector net savings started a precipitous decline as the
government moved from deficit to surplus.

Now, let's talk about what spending contributes. That's right, not what it
takes away but what it contributes. Government spending adds to what we
economists call aggregate demand. That simply means it boosts the overall
demand for goods and services, which in turn raises economic growth, which
then lowers unemployment, raises asset prices and incomes, and along with
that, wealth and ... you guessed it, savings!

Beware of fearmongering
That's precisely why all this talk about "leaving a legacy of debt to our
children" is such nonsense. It has been estimated that this current
generation will inherit more than $20 trillion in wealth from our parents.
We would not have been getting so much were it not for the fact that
government spending raised economic growth over a generation. Where, then,
is this legacy of debt? It's an illusion that has been propagated by
misinformed individuals who really have their heads stuck in the old days of
fixed exchange rates and the gold standard (but that's for a whole other
article).

The fact of the matter is that unless we decide to end the growth policies
that have been driving this nation's economy for the past two centuries, we
shall be leaving the same or even more riches to our children and our
grandchildren than we'll inherit from our parents. It's always been that
way -- and it's the reason why all the worries about the Social Security and
Medicare "time bomb" are misplaced. Do you realize that those dire forecasts
have been around almost since Social Security's inception back in the 1930s?
Yet they have never come to pass.

Of course, it doesn't mean we still can't mess it up. Unfortunately, stupid
ideas are gaining more and more of a following. Well-known and highly
credentialed people are advocating changes that might actually bring on a
bust down the road. Policy recommendations that spring forth as a result of
deep-seated misconceptions about America's financial position could spur the
very debt and payments crises that the Doomsday crowd has been warning about
for so long.

When talking about the deficit, John F. Kennedy once said, "To the extent
that it does not create inflation, there is no theoretical limit to
deficits." More recently, policy makers in Japan proved this by taking that
nation from one of the most fiscally conservative countries to one with the
largest deficit of any industrialized nation. The result: economic growth
finally resumed and long-term interest rates stayed near zero.

Fool contributor Mike Norman is founder and publisher of the Economic
Contrarian Update and is a Fox News Business contributor. He also is a radio
show host at BizRadio Network.


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