Is the Deficit Really So Bad? - 89.02

Is the Deficit Really So Bad? - 89.02:

"From the time the big deficits started, in 1982, through 1987, the government borrowed about $1.1 trillion--a lot of money. If the deficits had been proportional to the average of those of 1960-1981, a little more than 1.5 percent of GNP, the government's borrowing from 1982 to 1987 would have been about $350 billion or about $750 billion less than it was. Most of that $750 billion, instead of being sopped up by government consumption, would have been added to Americans' stock of invested wealth, and would be augmenting future income. We lost some of the returns on the $750 billion in the form of interest payments to foreigners who invested here (the interest rate during the 1980s was roughly 10 percent), and some of them in the form of investment that the United States simply did without. The returns here, too, economists say, would have been something like 10 percent a year. So we are talking about a reduction in future American income on the order of $75 billion a year, forever.
A good way to think about what all these numbers mean is this: to have consumed an extra $750 billion in wealth, which might have yielded annual returns of $75 billion or so a year forever, is roughly comparable to throwing a party today in exchange for accepting a serious recession spread out over the rest of time. In an interview late last year Schultze said, 'It's like adding one more recession to forever.' If we were to go on the same way for another $750 billion, we would add another recession to forever. And so on. We could probably do that several times before we noticed much of a difference in any particular year."