THE TRUTH ABOUT THE NATIONAL DEBT

A career technocrat's immensely informative, albeit against- the-grain, analysis of the perceived problems of federal budget deficits. Drawing on more than four decades' experience as a Washington insider (as a senior government economist under seven presidents and as head of the Federal Retirement Thrift Investment Board), Cavanaugh offers a remarkably clear, often engrossing rundown on government finance by setting the record straight on frightening fictions that have become staples of political rhetoric. First off, the author puts paid to any notion that the national debt imposes an unconscionable burden on future generations, arguing that the country owes its grandchildren progress in the utilization of human and material (rather than financial) resources. Nor does he put much stock in the assumption that Big Brother crowds out private investment, because federal deficits tend to be greatest when the domestic economy is slumping and credit demand is low. Cavanaugh also addresses the widely held belief that the national debt's interest costs are unsustainable; while such expenditures are completely uncontrollable, they are manageable, he asserts, concluding that interest should not be included in the federal budget (whose principal purpose is to contain spending). The author goes on to dismiss fears that US debt is enriching either the affluent or foreigners, pointing out most obligations of the Treasury are held by and for the benefit of middle-income Americans. He also shows that there's precious little risk of default by the Social Security trust fund (which has nothing to do with the federal deficit). Cavanaugh finishes with some modest reform proposals, notably, introduction of a system that would make legislators more accountable by subjecting them to the discipline of levying new taxes whenever federal outlays exceeded budgeted receipts. An uncommonly sensible challenge to conventional wisdom on a complex issue that's sure to be a focus of partisan debate in the 1996 presidential election and beyond.