FOUR Februaries from now, when the new or reelected president gives his State of the Union address, the gross national debt of the United States will tower 65 miles higher than the 267-mile stack of thousand-dollar bills that represents this year's $4.2 trillion total.
And that's if President Clinton's deficit-reduction program is enacted and operates as well as the Congressional Budget Office expects. If not, the debt in 1997 will far surpass the CBO's $5.2 trillion projection.
Whether taxpayers should interpret CBO's data as cause to grieve or rejoice depends on which economist they believe. Practitioners of "the dismal science" advance diverse and highly conditional opinions when it comes to the gravity of the annual deficits that aggregate into the national debt.
They even have trouble agreeing on a starting point for debate. Most economists, for instance, say that gross federal debt is the wrong statistic to consider because it contains federal debts held by government accounts; that is, debt the government owes itself.
Instead, they look at federal debt held by the public relative to gross domestic product. For 1993 the CBO estimates publicly held government debt at $3.3 trillion (54 percent of GDP). The ratio was 24.5 percent in 1974, but stood at 113.8 percent at the end of World War II.
On the other hand, Laurence Kotlikoff at Boston University dismisses the national debt as "a number in search of a concept."
A better way to determine the long-term sustainability of current federal spending, the economics professor says, is through "generational accounting." This looks at the widely varying percentages of their income that people born in different years pay in tax compared to what they receive in government payments over their lifetimes.
Conceptually, generational accounting is useful and valid, CBO director Robert Reischauer says. But the methodology is challenging. "You can change just a few of his assumptions and get his numbers to jump around wildly." Dr. Kotlikoff says generational accounting is "the only form of long-term fiscal planning that we're doing." But, says Dr. Reischauer, "we really can't run our accounts that way. The numbers are too squishy." Nonetheless, Reischauer, a self-professed "deficit hawk" and fan of Ross Perot 's infomercials, draws the same conclusion from debt figures as Kotlikoff does from generational accounts.
Without Clinton's plan, the CBO estimates, the government would run $500 billion deficits by 1999. "And taxing nobody except your kids to do it," Reischauer says.
Kotlikoff calculates that someone born in 1900 paid 18 percent of his lifetime income in taxes. Before Clinton, he expected today's newborns to pay 34 percent, and future generations up to 70 percent.
"We have to make very significant adjustments," Kotlikoff says. "The Clinton plan only takes us part of the way."
Adds Reischauer: "Now is the time."
Enter Robert Eisner, a liberal Northwestern University professor and past president of the American Economic Association. Dr. Eisner was infuriated by Perot's alarmist flip charts. "A lot of deceptions and pandering to people's ignorance," he charges.
"We're spending our children's money? That's utter nonsense," Eisner adds. "The money your children will spend hasn't even been printed. [Federal Reserve Chairman Alan] Greenspan and his successors will provide all the money they need."
Eisner argues that borrowing is good for a country if it uses the money for capital investments (roads, airports, and "human capital") and not for current services. The government should keep its debt in line with income, just as a business would. If GDP grows a nominal 7 percent a year (which it hasn't since 1989), so can debt, he says. Seven percent of $3 trillion of publicly held debt is $210 billion. "That," Eisner says, "is a deficit which represents balance."
Clinton's stimulus package, which adds to the deficit, could be even bigger, Eisner says. He also points out that inflation reduces the real value of the national debt. If a $300 billion deficit is added to the existing $3 trillion debt, but then the whole is reduced by 3 percent inflation, the net real increase is only $200 billion.
While they may debate appropriate deficit levels, really fall out over how and why it's incurred. Eisner wants a more progressive tax code and social programs. Paul Craig Roberts, a supply-sider who worked in Reagan's treasury department, buys Eisner's deficit-adjustment theories but favors low taxes and military spending. Reischauer says a little deficit incurred for investments or to solve poverty would be fine, but none of those things have happened. Instead, deficits allowed "public-sector consumptio n" such as farm price supports or entitlement programs. Those should be paid for by taxes, he says.