Tuesday, February 17, 2009

A math problem

Let's say you've decided to stimulate the economy by spending $789 billion over the next ten years, much of it many years off. You know that the stimulus will make the economy grow faster, which will increase tax receipts, which will reduce the cost of the new spending (part of the spending was foregone tax receipts, after all).

Factoring in the higher growth rate and the time until the spending will actually occur, by what amount should you increase the debt limit today?

Exactly $789 billion.

That's the adjustment included in the stimulus bill. Evidently Congress believes that the stimulus effect will be just enough to cover the interest due on the new debt.

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