Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 10, 1993 TAG: 9301120382
SECTION: EDITORIAL PAGE: F-2 EDITION: METRO
SOURCE: By JOHN V. SPITZ
DATELINE: LENGTH: Medium
ECONOMIC ANALYSIS GAVE DISTORTED VIEW
REGARDING YOUR Dec. 23 editorial, "Think long-term, Mr. Clinton," I differ with some of your arguments and findings.The 1981-82 recession was brought on by Paul Volcker's tight money (much aggravated by a new, imperfectly understood regulatory situation). President Carter did appoint Volcker, but he also appointed William Miller, who, with the Carter administration's encouragement, created double-digit inflation and made the subsequent recession inevitable.
It is a distortion and a repetition of largely discredited arguments to write that the Reagan years "benefit mostly those already near the top." Consider these numbers:
From 1982 to 1989, average incomes increased in all the quintiles of the income distribution.
There continues to be substantial income mobility in the United States. For example, the proportion of families with income above $50,000 (1990 dollars) rose to 31.6 percent in 1989, a 30 percent increase over 1977. Most of that change occurred after 1982.
The gap or dispersion between the lower-income groups and the rest has widened in the past 20-25 years. We see this also in many European countries, suggesting factors that are common, rather than specific national policies. Increasingly, there are premiums paid for well-educated and highly skilled workers, and people are equipping themselves accordingly. Young, inexperienced, poorly educated people fall further behind. This trend is combined with the drastic increase in single-parent households, which by itself "explains" a good portion of the worsening income distribution.
Anyone concerned about "fairness" in income distribution should first acknowledge the critical role of stable prices. Inflation can do more harm to low-income households than most government policies.
Turning to another section of your piece - "substituting debt for taxation" in the Reagan years contributed to "the growing inequality of wealth . . . .":
Just how does the purchase of a treasury security - instead of corporate debt, real estate, or even a yacht - make the rich richer, or the poor poorer? Also, a lot of federal debt is held by average folks, in the portfolios of pension and mutual funds, insurance, annuities, etc.
You are correct if you were saying that, given the high level of spending, taxing would have had a leveling effect on the after-tax income. I don't think that's what you had in mind, given your comment that "poor people don't buy T-bills."
As for "the transfer of resources from the young (on whom the debt service is placed) to the old":
The real (as compared to financial) transfer of resources occurs when the government borrows and spends on entitlement programs for the elderly - and farmers, veterans, the poor, college students, minorities, tax-exempt health insurance, home mortgages - and we use these funds for current consumption on goods and services. These goods and services are transferred not from young future taxpayers, but from current savers who voluntarily prefer to purchase securities instead of spending on real goods now.
Whether or not future taxpayers, young today, will have a heavier tax burden as a result of the 1980s and 90s deficits, depends on how much their production and earning capacity will have grown. To the extent that deficit funds went to enhance our current consumption and diminished productive investment, that future capacity will be lower than it might have been, and the felt tax burden, heavier.
John V. Spitz of Salem is a retired professor of economics at Roanoke College.