Public Debt

Daniel Gross has a good article in the NYTImes about Public Debt and the rising Interest rates.

the United States government is the largest adjustable-rate borrower in the world. Each year, the national debt grows. Congress spends more than it is willing to raise in taxes, so it finances operations by selling debt to the public. In the last five years, the gross national debt, which includes bonds pledged to fund Social Security and other entitlements, has risen 46 percent, to about $8.5 trillion, from $5.8 trillion at the end of September 2001.

According to the Bureau of the Public Debt, the average interest rate paid by the government on public debt rose to 4.853 percent in August from 4.176 percent in the same month last year — a 16 percent increase. As a result, the government’s interest bill is expected to rise to $220 billion this year from $184 billion in 2005.

Tyler Cowan has an interesting blog citing Andreas Bergh's analysis on the viability of Welfare systems according to the Scandinavian model. Greg Mankiw has a very good Post on the potential Incentives lost by Means-Testing and other fiscal procedures to reduce longterm liabilities of Welfare programs. Mark Thoma gives a link to a Hal R. Varian article on raising gasoline taxes.

What does it All mean?

The most elemental fact states that Public revenues can be raised without destroying economic incentives, so Public Debt does not have to exist. One of the elements which Cowan and Bergh may find in the upper European welfare systems consists of a sound Pay-as-you-go method of finance. Greg Mankiw's worries about Incentives are real, but without numerial placement of degree of Incentive loss, cannot be claimed as a Retardent until it shows impact upon overall economic performance; fiscal viability may increase much faster to replace any losses. Economists must crunch the Numbers like always.

The payment of foreign creditors by the U.S. Government in 2005 was $77 billion, according to the Daniel Gross article; and is scheduled to increase in both 2006 and 2007. Here is a major fly in the Ointment! Action should be taken to transfer this Debt to domestic sources. This would not be as hard as imagined, considering the current level of Business Capital investment in the United States, and in the face of rising Interest rates. I hope Administration understands this Transfer should be conducted in longterm Securities. This transfer would raise the Price of foreign Goods in American domestic markets (think Imports decreasing at a faster rate than Exports here), and Business Capital Investment would rise in the domestic economy. It is a debateable economic policy, but an Option. lgl