Here’s the text of an e-mail I sent to the NY Times, ref: an Op-Ed piece entitled “Why Pay Off the Debt” by a retired math professor. Check it out and then we’ll talk. BTW: the NY Times Editor, likely a twenty something savant with the attention span of a newt declined to publish it. Can you blame him? (She does go on..and on..)

If things in the economy were as simple as Professor Charlap described, then the answer would be obvious, and his statement “I cannot find a period when too much debt hurt us” would lead to the conclusion that it makes no sense to pay off the debt. But the U.S. economy is complex and dynamic, with a variety of cause-and-effect relationships simultaneously occuring. But saying that does not dismiss the need to answer the question, which unfortunately will require some rephrasing and examples of what has occurred with other countries.

The debt is a result of more dollars going out than coming in. The impact of that is not felt in a given year, or a decade or even over a lifetime. And I agree with the professor: the U.S. economy is not the same as a family’s economy. The government manages money either loosely or tightly to influence the economy to avoid the pitfalls of inflation and deflation. For the bulk of our current life experience, we have experienced inflation and not deflation – by a factor of 30 to 1. There have only been two years – 1955 and 2009 – when inflation has been negative, i.e. when we experienced deflation. But before that? From 1921 to 1933, we experienced deflation 8 out of 13 years. And what was the debt in those two periods? From 1955 to the present the debt grew by a factor of 58. From 1921 to 1933 there was a 6% reduction in the national debt. So a facile conclusion would be that to pay down the debt is bad for the economy, resulting in negative growth, and therefore we should not even try to reduce it.

But there’s another example: Japan. From 1993 to last year, Japan’s debt increased from 80% of GDP to 230% of GDP. Over that same period, it experienced deflation in 11 of the 20 years, with 1.1% the highest level of inflation for the period. So if you look at that data, you’d say increasing debt causes deflation, and therefore we should try to reduce and pay it off. But we know that isn’t true: common sense says it isn’t.

So what’s the real issue? It’s growth, accurately and consistently measured. Debt as a function of that growth determines whether you’re in trouble or not. If there’s growth, debt can be managed. If there isn’t growth, the cost to service debt becomes increasingly more difficult, and usually leads to drastic action (ref: the Euro mess at the moment). At the same time the debt has been increasing, so has the population of the U.S. So has the GDP in every year from 1950 until 2009. The reality is, there’s both a numerator (debt) and a denominator (GDP). If both are increasing, it’s OK. if both are decreasing in proportion to each other, maybe you’re OK. But if the numerator is increasing and the denominator is decreasing – for whatever reason – you’re in big trouble. So the answer to the question “Why Pay Off the Debt?” is found in the reality of global competition and demographics. When our growth declines because of either factor, it will be too late and we will have to face years of hardship and/or renege on our debt and become just another third world country. Fortunately for us, China is our only real global competitor, and they are facing a bigger challenge than we are in the next few years with their debt to GDP ratios (whatever they may be – they likely manipulate the numbers). And demographics? Hello, immigrants! You will be our salvation when baby boomers begin to retire in droves. Keep that growth machine going, and paying off the debt will be a non-issue.

So now that you’ve read that, here’s the thing: a large portion of the world is messing with those two numbers. For example: China keeps increasing the numerator at the same time the denominator is decreasing. Per the above, that’s really bad, right? Well, they have lots of money stashed, so they can keep doing this for a long, long time and hope things in Europe get better so they can start exporting stuff again. OK, what’s Europe doing?

Europe is decreasing the numerator at the same time the denominator is decreasing. That’s the ‘maybe you’re all right’ example above. But are they? It’s all in the proportions. The denominator is decreasing at a faster rate than the numerator. That’s bad for Europe, and bad for China since they aren’t buying that stuff.

What about Japan? Japan is increasing the numerator in an attempt to increase the denominator, after having spent the past twenty years seeing their denominator decrease slowly while the numerator is increasing. So how does increasing the numerator faster help? A lot of folk are mystified by that. But it seems to be working: they may actually have sufficient growth to break out of their doldrums. But they’d better hurry: demographics is sneaking up on them.

So what about the third world, the so-called BRICs? Brazil, Russia, India, China. We’ve already talked about China, which isn’t really a BRIC. Russia relies totally on energy exports, which will be in jeopardy when our natural gas exports cause them to lower their prices – not right away, but eventually. Brazil is experiencing stagflation and social unrest. What’s stagflation? Growth is declining while prices are increasing. Deadly combo, eh? Finally, India is still struggling to feed its ever burgeoning population while continuing to try to compete in the global marketplace for jobs…I’d bet they’ll emerge a winner eventually.

And that leaves just the US of A. Economically, we’re the healthiest economy in the world. Our political situation is tenuous at best, but destined to work itself out when the Republicans can’t agree on what day of the week it is, much less how to govern any segment of our country. What must we do to continue to survive and thrive? Three things: reduce the cost of education, housing and health care. First, reduce the cost of education. The MOOCs will see to that. MOOCs are massive open online courses, and they will revolutionize education in this country. Second, reduce the cost of housing: that’s a technology and political question, but the incipient and long-awaited housing boom is upon us. And finally third: reduce the cost of healthcare. Obamacare is on the way – albeit slowly. Preliminary results out of New York show every indication that the cost of health care will be reduced. And all of this under the noses of Republicans who think the answer is to get the government completely out of loan guarantees for housing, increase the interest rate for student loans and repeal Obamacare. Oh, okay…great model, eh?

So the next time you see a Republican, be nice to him or her: it’s tough being an endangered species doomed to self-destruct through the desire to cling to an outdated and risky model.