Over the weekend I heard a radio program discussing what should be done to fix the economy. It proved that America cannot be fixed before it collapses.
The interviewer asked random individuals what they thought the government should do to fix the economy. Every single person was of the opinion that the government needed to stimulate the economy with more spending. More frustratingly, many people said that consumers in general needed to be more patriotic and spend a greater portion of their paycheck to help the economy recover.
Strong delusion intoxicates America. I have never heard so many people sound so dogmatically self-righteous in their opinion that more spending—government and private—would fix things.
The argument was that if everyone just started spending more money, then more jobs would be created and America’s economic problems would be solved.
Sounds deceptively logical.
Gary Burtless, a former Labor Department economist, articulates: “We want to spend money. We want to create demand for businesses so that they want to add to their payroll” (emphasis added).
Ah. But there are two types of demand. There is the good consumer demand, powered by savings—and the other kind, driven by deficit spending. One is sustainable. The other causes bubbles, and ultimately bankruptcy.
In case there is any question, America is expert at the latter. And a blowup is looming.
Yet most Americans remain clueless. Burtless says the government should take advantage of its borrowing ability to stimulate the economy. “The world is willing to buy government debt, and the government—if it’s willing to spend this money—can create additional demand to put people to work,” he says.
What Burtless conveniently doesn’t say is what happens after the government has spent all its borrowed money. Or what happens when already-debt-saturated consumers further indebt themselves.
What lasting benefit will America receive for indenturing its taxpayers? Will repaving America’s roads make America that much more efficient? Will shinier Chinese-made bridges increase our productivity? Will the latest iPhone make workers more proficient (or, actually, more distracted)?
In reality, once the money is spent, America will just be back to where it began—only with a lot more debt.
In other words, America will be worse off.
The problem is that today, America is already worse off. Deficit spending has been America’s modus operandi for decades.
Remember the savings and loan crisis? The solution: Borrow money to throw at it. Dot-com bust? Borrow and spend more money. Housing bubble pops and banking sector fails? Borrow and spend even more.
Why is it so hard to connect the dots? The supposed solution is the cause.
The truth is that there is no easy way out of America’s predicament. America has spent tomorrow’s money. It has spent next week’s and next year’s money. It has spent its grandchildren’s money too. It has spent money it does not have and never will have.
In addition to the money America has stolen from its own children, it has also spent a couple trillion worth of China’s money. It has squandered several hundred billion worth of Japan’s. Saudi Arabia’s billions are long gone, as is the money America borrowed from Mexico.
Yes, Mexico—America has been reduced to borrowing tens of billions from a country that many Americans consider its poor, underdeveloped neighbor. America borrows tens of billions from Thailand too. And billions from Malaysia.
And it has done this all in a vain effort to prop up an economy that is founded on over-consumption and debt—the opposite of what a stable economy should be founded on.
America has forgotten that it is hard work and savings—not deficit spending—that makes an economy successful. It is savings that drives investment. Savings drives growth. Savings makes prosperity possible.
Just look where the decades of deficit spending have gotten us.
America’s default on the gold standard in 1971 was a fulcrum in U.S. economics. America had been trending as a nation of savers and producers. This country was literally the world’s marketplace, dominating global trade and manufacturing. America was an established net lender, lending other nations far more money than it borrowed. And America’s middle class? The largest and richest in history. Employers couldn’t get enough workers. A short decade and a half after the end of the gold standard, the wealthiest, most powerful country on Earth was reduced to a net debtor.
But look at America now.
The world’s richest nation now finds itself in the ignominious position of the world’s largest debtor. The jobs are gone. Debt payments are draining the life out of the economy. And the dollar, which used to be “good as gold,” is now a debased and increasingly discredited currency.
Meanwhile, the “patriotic” consumer ignorantly continues the impossible task of spending his way to prosperity.
America is about to be crushed. Not just by debt, but by its ignorance. There are both economic and moral laws that when upheld result in prosperity—and America is breaking them all. ▪