A vision of change for America.

  • United States. President (1993-2001 : Clinton)
Date:
[1993]
Catalogue details

Licence: Public Domain Mark

Credit: A vision of change for America. Source: Wellcome Collection.

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    This drain on our savings has caused anemic domestic investment, especially in comparison with most other advanced industrial countries (Chart 2-7). It has retarded growth in productivity and living standards. Meanwhile, borrowing from the rest of the world to maintain investment at even today’s depressed levels has increased interest payments to foreign lenders. In effect, we have signed over some of the fruits of today’s productivity-enhancing investments to the children of Europe and Japan, rather than preserving them for our own. Regardless of whether the debt is owed to foreigners or U.S. citizens, the interest obligation requires higher taxes. Moreover, our skyrocketing interest costs squeeze out revenues that would otherwise be available for other priorities. Since 1988, for example, net interest alone has risen by $50 billion, making interest payments the fastest growing Federal “program.” This mounting interest burden mocks our efforts to fund token initiatives for pressing social needs: next year’s projected increase in interest payments by itself could fully fund the Head Start program five times over. As a result, the nation has suffered from another deficit—the deficit in public investment in education, training, infrastructure, and civilian technology. Like private investments, well-chosen public investments raise future living standards. Deficit reduction at the expense of public investment has been and will continue to be self-defeating. The Clinton plan is explicitly and emphatically aimed at reducing the deficit while increasing much-needed public investment. One without the other will not work. Beyond the quantifiable benefits of deficit reduction—greater investment and economic growth—are unquantifiable but no less important benefits. First, deficit reduction could allay anxiety in financial markets. Large and growing structural deficits could destabilize global capital markets because of the growing drain of government borrowing on available funds. Such anxieties help explain why historically high long-term real interest rates persist despite a weak economy. The threat that the United States might ultimately inflate the dollar to depreciate its runaway debt obligations raises the specter of a spike in interest rates, a collapse of the dollar, or both. Second, a credible effort to reduce our structural deficit will improve our ability to coordinate macroeconomic policies with our major trading partners, who are concerned about our deficit’s drain on global capital markets. Putting our fiscal house in order will improve our leverage in international negotiations. Finally, deficit reduction will help break legislative gridlock and reverse public cynicism about government. Large deficits have virtually assured that each legislative session has been dominated by the deficit debate, encouraging budgetary quick fixes that have shortchanged the nation’s long-term. public investment needs and created a deficit of trust.