deficit/debt subject is one of the most vigorously discussed topics
on the USA's national agenda. Politicians spend a lot of time
theirs and ours talking about the evils of deficits
and debt, and how they'll solve the problem for us . . . that
is, if we'll just elect them to powerful positions. Some special
interest groups, such as the Concord Coalition, owe their entire
existence to this emotional topic. They try to scare us to death
by posing their children next to the ticking Debt Clock, warning
us that we've already piled five figures of debt onto each innocent
kid's head then asking us for a donation to help them save
future generations from catastrophe.
are all misleading us. They are all focusing on the money;
they are ignoring what we get for the money. They get votes
or donations more easily by manipulating the emotional topic of
surpluses, deficits, and debt; they carefully avoid discussing
whether any given expenditure would be a good investment for the
future. They deftly sidestep a principle every astute banker and
business manager already knows: that worthy projects can be safely
financed with a measure of borrowing -- and conversely that unworthy
projects should be rejected outright, i.e., should be financed
neither through borrowing nor through taxation nor
through equity. They talk as if "success" means "avoidance
of borrowing and debt," but never explain why long-time borrowers
Donald Trump, Wal*Mart, General Electric, or Uncle Sam have become
not abject, debt-ridden failures, but phenomenal success stories
instead. By focusing on the money, instead of what we get for
the money, they have steered the national debate onto the counterproductive
sidetrack of deficits and debt -- away from the important debate
about the best ways to achieve growing incomes for all. I repeat:
They are all misleading us.
website is a plain-talk attempt to show why the topic of deficits
and debt is the wrong debate. The proper debate would focus on
economic growth rising incomes for you, me, and
our neighbors not on deficits and debt. Debt is harmless,
even desirable, if it is successfully employed to achieve income
growth for current and future generations. Hence the theme of
is the wrong enemy. Growth is our forgotten friend.
(or lending) money for good investments is sound financial practice;
ask any banker. It's perfectly okay to borrow money for the following
investments: the car that gets me to work, the new store that
helps Wal*Mart grow more profitable, the school that educates
my kids, and the aircraft carrier that defends my country.
federal government's "unified budget" confuses the debate.
States don't use it, corporations don't use it, individual citizens
don't use it, county and city governments don't use it. Only the
feds use it. Everybody else separates things into two budgets:
an operating budget for everyday expenses, and a capital budget
for investments. They balance their operating budgets, and they
borrow i.e., they "spend more than they take in"
to help fund their capital budgets.
investments generate benefits into the future. My new car gets
me to work for several years. A new store increases Wal*Mart's
profits for many years. A new school helps to educate our kids
year after year. And, year after year, an aircraft carrier gives
foreigners a big incentive not to try to take my car, my Wal*Mart
store, or my kids' school away from me. All of these things are
good investments, and as any banker will attest, borrowing for
good investments is sound financial practice.
induces growth. Those are the two most important words in this
website, so I'll repeat them: "INVESTMENT" and "GROWTH."
Growth means to get wealthier. Investment is an attempt to induce
of us invest: I do, my city and county do, Wal*Mart does, and
(last but not least) my federal government does. We all invest,
attempting to make the future better than it would have been otherwise.
investment attempts succeed; those are the good investments. Some
fail; those are the bad investments. Nobody's perfect not
me, not my local government, not Wal*Mart, not the feds
but if we all keep making more good investments than bad ones,
we'll succeed in achieving growth in the aggregate.
of the federal government's expenditures can be classified as
"investments"? Adam Smith, the famous eighteenth century
economist, told us in 1776 the year his book, An Inquiry
into the Nature and Causes of the Wealth of Nations, was published.
Although he's credited with "laissez-faire" economics
(the principle that the free market, not the government, is the
best arbiter for economic progress), many of us seem to have forgotten
his dictum regarding government's role
Smith said it's a government's duty to provide a nation with five
basics: defense, justice, education, infrastructure, and a stable
currency. After providing those, he said, it is then that the
government should stay out of the free market's way.
the government is successfully providing the nation with Adam
Smith's imperatives defense, justice, education, infrastructure,
and a stable currency it is investing successfully in the
nation's future. But that begs the question of how we can judge
the overall success and failure of our investments
can we tell if, in the aggregate, we've been making good investments?
The bottom line is this: the lenders are already telling us how
well we're doing. If I'm a good credit risk, my banker will be
glad to lend me money for a new car or house; if I'm not, he won't.
If Wal*Mart has a good track record (they do), lenders will demand
a relatively low interest rate for Wal*Mart bonds. If my local
government has succeeded in growing its tax base, in part by successfully
educating its growing population, lenders will be happy to buy
municipal bonds that help build new schools. Lenders those
who make the market for debt instruments are already telling
us how well we're doing.
what the lenders think is one of the safest investments on the
entire planet: that's right bonds offered by the Department
of the Treasury of the United States of America. Federal debt.
Lenders worldwide are glad that the USA wants to borrow some of
their money. Why? Because they know with certainty that they'll
get their interest payments and their principal back -- in full,
and on time. (
that is, unless some of my misguided Republican
colleagues someday repeat the blunder of '95, and succeed in shutting
down the government throwing it into default on its bonds
-- just to make a dangerously misguided political point about
budget-balancing. I have more to say about that in the Rhetoric
are we to conclude, then, about the success or failure of the
federal government's investments in defense, justice, education,
and infrastructure? Don't take my word for it; Listen to what
the lenders are telling us:
Debt is a sound way to finance good investments. Good investments
induce or foster economic growth for individuals, for businesses,
for local governments, and for the federal government. In other
words, good investments make us wealthier, and debt is a sound
way to finance good investments; therefore, debt -- aka, using
"other people's money" -- can make us wealthier.
and debt are not the monsters that vote-seeking politicians
and donation-seeking special interest groups are portraying it
to be. We shouldn't be worrying about deficits and debt;
we should instead be worrying about how to achieve non-inflationary
growth in national income -- such that national income
grows at least as fast as the debt grows. The private sector provides
most of the wealth and growth -- however, government does some
investing, too. It invests in different things (vs. the private
sector), but it invests nonetheless.
public sentiment, nothing can fail. Without it, nothing
is the wrong enemy. Americans should welcome the growth-enhancing
lower tax rates enabled by prudent borrowing. Unfortunately, growth
--our forgotten friend -- never seems to come up in the debate.
Let's change that. Let's get the national debate off the deficit/debt
sidetrack, and onto the right track: economic growth.