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Deficits, the National Debt, and Economic Growth: What many politicians don't want you to know.
Reagan, Jefferson, and Lincoln
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Please remember the following as you peruse this website: The jabs I take at politicians — some satirical, some humorous, some stern — were all written in the four years prior to September 11, 2001 - "The Cusp." This has been my forum for pointing out the fallacy, folly, and danger of many politicians' economic arguments. Keep that in mind, especially as you read the articles directly addressing the national security risks inherent in the political rhetoric prior to 9/11/2001.
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Summary

Here are direct links to my national security related articles:

Gray Goo: A Burden on Our Children (1998)
Did I Balance My Checkbook? (1997)
Smart Debt: Affirming the Reagan Legacy (1999)
What's an Investment? (1997)
Nuclear Bonanza (1997)

That said, the rest of this page is a summary of the whole idea behind this website.

Summary
In 1997, I established this site to propagate three truths. On September 11, 2001, I realized that those truths had not yet propagated far enough. Those truths are as follows:

Making good investments is top economic priority, for individuals and for government.
National security, as Reagan knew so well, is one of the two best investments our government can make. The other: unleashing the private sector's wealth-creation potential.
Borrowing for good investments is NOTHING TO FEAR - political rhetoric notwithstanding.

Good "Investments" either create wealth or protect wealth. (Please note: By "wealth" I have always meant lives, happiness, hope, and security - not just cars, clothes, and toys; see What Is Wealth?.) Tragically, on September 11, 2001, it became obvious that we hadn't done enough "investing." We had spent eight years allocating the so-called peace dividend to just about everything except investing sufficiently in national security — i.e., in ensuring future peace.

What follows is this website as it stood prior to September 11, 2001.


"Deficits and debt are evil." Those who command the big microphones have hammered that falsehood into our minds and hearts for decades. The World Wide Web has given me an opportunity to hammer back.

The 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.

They 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.

This 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 growthrising 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 this website:

Debt is the wrong enemy. Growth is our forgotten friend.

Here's why:

Borrowing (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.

The 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.

Good 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.

Investment 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 growth.

All 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.

Some 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.

Which 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…

Adam 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.

If 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…

How 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.

Guess 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 section.)

What 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:

"The USA has become the wealthiest nation in the history of civilization. You are obviously doing something right. We'd love for you to do even better, and because of your excellent track record of growth so far, we'd be happy to help you continue to grow. In other words, we'll lend you our money at one of the lowest interest rates we demand of any entity on the planet. Thank you for giving us a safe, secure way to invest our money. Keep up the good work, America!"


Conclusion

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.

Deficits 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.

"With public sentiment, nothing can fail. Without it, nothing can succeed."
--Abraham Lincoln

Debt 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.

End of this article
Last update of this page: Sept. 18, 2001
 
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