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Large deficits don't doom future generations, says NAF

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Though large deficits can have a negative impact on economic growth, it is nearly impossible for them to create a realistic situation where future generations would enjoy a worse standard of living than the present, says the New American Foundation.

In a report (.pdf) dated Nov. 19, NAF says that some households have seen a decline in the standard of living over recent years, "but this has been due to increasing inequality, not a decline in the nation's productive capacities." Economic inequality among citizens is more of a threat to declining standards of living than the potential negative impacts of deficits, the report adds.

It shows projected shortfalls in programs like Social Security could be easily fixed if efforts were focused on economic inequality and the "pattern of upward redistribution of income" is stopped.

"There is no way in which the debt in any way measures the extent to which current generations have made future generations worse off," writes the NAF. "In fact, the debt as conventionally reported is an arbitrary number that tells us very little about anything."

It contends the main reason that deficits are projected to reach dangerous levels is that private sector health care costs are projected to continue to outpace the rate of economic growth.

NAF says deficits are traditionally argued to reduce growth by pushing up interest rates and limiting private investment but notes this is "only plausible when the economy is near full employment" because that would constrain supply.

Deficits can also be run to promote public investment, such as infrastructure or education spending, which can increase an economy's productive capacity and has historically led to an economy that is richer in the future, says the report.

The paper also says that the aging population will not lead to a decline or stagnation in living standards because increases in productivity will increase living standards over time. "Under any plausible scenario, the benefits from growth will swamp any negative impact on living standards from an aging population," says the report.

For more:
- download the report (.pdf)

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