Friday, December 5, 2008
The legacy of debt
A generation or two ago our parents and grandparents handed us a legacy of debt. It was a debt that was enormous—nearly 10 times the size of the current debt we have today. That debt was the cost of fighting WWII.
According to the current crop of “Debt Doomsday” folks, that debt should have made us poorer. It should have resulted in us having to “pay back” that burdensome legacy. The things we enjoy today—our homes, cars, clothing, food, education, health care, leisure activities and the capital that creates all that—really doesn’t belong to us according to these people. By their analysis we haven’t the money to pay for it because we should be paying back the debt of a past generation. Rather than living at our current, higher standard of living, we should be poorer than our parents and far, far, poorer than our grandparents.
But it’s not the case. So what happened?
The debt back then provided the consumption and investment power that drove private production, which helped to employ people and create factories, plant, equipment and other things, which were the things that were part of the real heritage left to the future.
The same holds true now.
Government spending that brings us to a level where we are fully utilizing the resources of our nation—all of our capital and human capital—is not detrimental. Detrimental is not living at the level at which we are capable of, due to some irrational fear.
To be sure, government spending in excess of what the full and efficient use of our resources can achieve is bad, but we are nowhere near that. At the current time 6.5 percent of our workforce is out of work, only 75 percent of our industrial capacity is being utilized and millions of homes, automobiles, computers and other consumer items are sitting unsold. Food sits in storage facilities and elevators, rotting away.
Moreover, a rising number of people in this country cannot afford to go to college, though there is room for them, and millions don’t have health care when the services are there to provide it. That is an enormous underutilization of our resources and it is a tacit embrace of a declining standard of living.
During WWII much of the capital we created was eventually destroyed. The planes, ships, tanks and other war materiel was sent to the battlefield and blown up. However, even the destruction of so much of our capital did not result in us becoming poorer as a nation. We emerged from WWII far richer.
Spending by the government now, to bring us to a level where we are fully utilizing our resources and capital will make us richer, not poorer. It will provide the income and investment to create the real wealth that will become what we leave to our kids and grandkids. The debt used to create this wealth will, as a percentage, be far smaller to future generations, just as the debt our grandparents left to us is tiny now. In contrast, by not living to our capability now, we will leave a larger debt to our children and in so doing; reduce their standard of living.
If Roosevelt had worried about deficits we’d all be saying, “Heil Hitler” right now.