Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, October 19, 1995 TAG: 9510190028
SECTION: EDITORIAL PAGE: A-11 EDITION: METRO
SOURCE: RAY L. GARLAND
DATELINE: LENGTH: Long
The debt clock had not been long in operation when one of the benefactors, John W. Hancock Jr., died. It turned out he had made no provision in his will to cover his half-share of the cost of maintenance, estimated at less than $100 a month.
Then came T.L. Plunkett, one of the executors of what must be a very large estate, to say the sign must come down because once the estate is settled, there will be no money to pay for it. Enter Roland "Spanky" Macher, who owns the site and operates the Star City Diner there, to say, "Hold your horses."
Macher is standing on the not unreasonable premise that since the sign is attached to his building, he might be its rightful owner. The Roanoke chapter of The Concord Coalition, headed by two former congressmen from the area, offered to find the money to keep the clock going. The business of the coalition is to sound the alarm against excessive government spending.
But Plunkett is having none of this, and insists the clock must go. That suggests someone's hidden motive, possibly related to the sign's implied political message. Plunkett is the likely source of the order to the company that has been maintaining the sign to disable it. There the matter rests and is likely to remain.
Knowing Hancock's generosity, it's hard to imagine he wouldn't have provided the modest support to keep the clock ticking had the thought occurred to him. The controversy ill serves the memory of a true patriot.
But it might provide a convenient point of departure for the debate over the debt and deficit now raging as the government runs out of legal authority to borrow more money. The Republican Congress says it will approve an increase in the debt ceiling if President Clinton will accept its plan to balance the budget in seven years, including some modest tax relief. Both sides are saying it may be necessary to curtail operations of the government if no agreement is forthcoming.
It's clear there must be a resolution, and world financial markets are taking a very calm view. The side holding the highest trumps is the one with the best standing in public-opinion polls. Currently, that advantage resides with the president, and he's likely to seek maximum political advantage from it.
Well, does it matter? The deficit in fiscal 1995 was about $175 billion. Representing just over 2 percent of our $7 trillion economy, it clearly poses no immediate threat. When viewed as a percentage of gross domestic product, the U.S. deficit is well below the average among industrialized nations. The Canadian deficit, for example, is more than twice as much, and Sweden's almost four times as great.
We should recognize, of course, that the real operating deficit, absent "borrowings" from various trust funds, is much larger than $175 billion. And there's no real provision for the enormous future obligations of the federal government under Social Security, Medicare and federal pensions.
But a debt exceeding $5 trillion can certainly pose a grave danger. A return to interest rates prevailing as recently as 1989 would quickly add $75 billion to the deficit. A combination of rising rates and falling employment could easily double that.
We should also focus on what might be termed the "institutional" growth of federal spending if nothing is done. Last December, when still controlled by Democrats, the Congressional Budget Office projected deficits of $2.6 trillion in the 10 fiscal years ending in 2004. This assumed existing tax and spending policies remaining unchanged against the backdrop of a reasonably strong economy. Fear of deficits stretching as far as the eye could see was one of the main reasons people elected a GOP Congress. Now faced with balanced-budget medicine, the people aren't so sure.
You can certainly make a case that zero deficits aren't really necessary and may prove harmful. For one thing, no new paper would likely mean lower interest rates - great for borrowers, lousy for lenders. It could also mean a rapidly appreciating dollar - great for Americans buying or investing overseas, lousy for those selling there.
I don't know the proper deficit. But given the size of our economy and the demand of savers here and abroad for bonds backed by the sovereign credit of the United States, I would guess that deficits averaging $100 billion a year, or roughly 1 percent of GDP, would represent something close to economic bliss.
While I wouldn't be shocked to see a deficit as low as $100 billion in one of the years remaining to me, it would be greatly surprising were that the average. And it may not matter a lot so long as we don't have the kind of runaway deficits that once seemed our certain destiny. Democrats and Republicans are no longer debating the wisdom of spending restraint, only how much is enough. That is an event of major significance.
Without a fiscal house in far better order than it has been, a few years from now the country will face a bitter choice between confiscatory taxation and truly drastic cuts in spending.
The passing generation of Americans possessed no moral right (nor pressing necessity) to run up such a debt during 20 years of relative peace and prosperity. The debt clock provided the useful service of pointing out that each citizen's share was fast approaching the point where the average family wouldn't pay enough federal income tax to cover even the interest on its portion.
Ray L. Garland is a Roanoke Times columnist.
by CNB