Thursday, February 4, 2010
Interest on the debt equates to income to people
Interest paid by the government equates to income to people who own gov't securites.
When Ronald Reagan took office, interest income comprised 11.8% of personal income, but by the time his deficit peaked in 1984, it comprised 16.2% of people's income or a gain of about $300 billion.
In contrast, private wages and salaries went from 49% of personal income to 45% of personal income or a gain of about $430 billion.
So, interest on the debt was a huge part of personal income gains under Reagan. (More than 15 times dividends even though we had a huge stock boom!)
Today, even though the government is paying a record amount of (nominal) interest, it is only 10% of overall personal income, meaning that if we were to get back to the level that we saw under Reagan, the interest payments on the debt would have to go up by 60%. We're nowhere near that and won't be if interest rates stay this low and deficit reduction remains the policy focus.