After I wrote the last blog, I realized I may have left you wondering, “If the federal stimulus is helping GDP growth, if we do start to retrench, why not just do another one on the government’s tab?”
The problem can be seen on the cover of the WSJ this morning, “Deficit to Hit All-Time High.” The government is not planting seedlings that will grow and continually yield fruit, but instead simply handing out fruit, and eventually the stockpile (being supported by debt) is going to run out. (See The National Debt Road Trip blog). Healthy economic growth stems from savings which are invested, not from debt or by creating money out of thin air.
Perhaps Keynesian economics (idea of using fiscal spending to get us out of a bust) would work if our country had a low debt to asset ratio. However, in our current state, it seems so obvious that borrowing to get yourself out of a debt crisis just won’t work…as we’ve said many times before – you’re simply delaying the inevitable.
I find it’s easier to think of macro in micro terms. Suppose for years you’ve been borrowing money to buy a big house, new cars, new TVs, etc. Now you have a huge mortgage, tons of credit card debt, and suppose you then lose your job and fall on hard times. You think to yourself, “Gosh, I really enjoyed living that high lifestyle, what can I do to sustain that “growth” I’ve been enjoying all these years?” I got an idea – why don’t you borrow even more money so you can buy the newest iPhone and Kindle? Hmm… And yet, that’s exactly what we’re doing as a nation…only the debt load has now switched from increasing on the consumer end to the government.
A friend of mine sent me a fantastic “rap video” on YouTube put out by George Mason professor, Russell Roberts, who teamed up with producer John Papola. It teaches between two different schools of thought – Austrian economics vs. Keynesian economics.
Check it out…I thoroughly enjoyed it: Fear the Boom & Bust
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