You might look at the national debt, snowballing by the second as interest piles up, and wonder why any government would consider running a deficit. Surely, that’s reckless, you might think. By adding more debt you add more interest, and interest on the interest… and on and on. But you should think it through before you accept solutions like Paul Ryan’s “austerity” budget.
Austerity is not the solution. It would only make the problem worse (as Britain and Europe are finding out – see illustration above). The solution can come only from growth. And growth needs money to prime the pump.
Remember the old story about the farmer who rented space for a roadside sign to advertise his vegetables to passing motorists. He did so well that he figured he might as well put up another sign to attract motorists coming from the other direction. That proved so effective he was able to send his son to college. The kid majored in economics and came home with a prestigious degree.
The farmer’s son studied the economic climate and concluded a downturn was due, so he advised his dad to cut costs by taking down one of the signs. Sure enough, the farmer’s sales declined, and the son advised cutting costs even further by taking down the other sign. You guessed it, sales plunged even more and the farmer went out of business.
The truth is that when a country’s economy stalls, the government has to kick start it or it will get worse. You can’t depend on private investment to fuel a recovery. In this global economy, business has no obligation to any particular country. Private money goes where it can make the most profit not where it can do the most good.
If the government uses deficit budgeting wisely and succeds in reviving the economy, business will return because in a thriving economy private investment can usually make an attractive profit. This will accelerate the recovery, and eventualy the government will recover its investment – with interest – through increased tax revenue.
This process is often described as an economic theory, but it is a simple statement of fact. Money attracts money, austerity breeds more austerity. As the Bible says, to him that hath shall be given and to him that hath not even that which he hath shall be taken away.
You might not agree with the way government spends your tax money. I certainly hate to see my taxes used to produce bombs and bullets for senseless wars. But the need for government spending is indisputable.
Think about it. If the government spends money on projects that produce dividends, surely that would be a good thing? Let’s say there’s a fertile piece of land that’s across an inlet from a major city, and let’s say the government builds a bridge so farmers over there can produce crops and sell their produce to the city dwellers. Doesn’t that make sense?
By their messianic dedication to austerity, today’s Republican leaders are proposing a disastrous course for America. Instead of blindly insisting on slashing government spending, they should join their Democratic opponents in figuring out the most productive ways to spend tax dollars. Naturally, spending would have to be reined in later – after the economy is up and running on its own.
When your car is stuck in a bog, you don’t sit inside and save gas; you get out and push.