Thursday, March 26, 2009

"You Can't Borrow Your Way Out of Debt"

Daniel Hannan, MEP for South England, giving a speech against Prime Minister Gordon Brown. I wonder if our government's going to take a lesson from this? Unfortunately, I'm not too optimistic on that count.

The Governor of the Bank of England is also warning Gordon Brown that the UK cannot afford another economic stimulus in the budget. How long until the US gets into similar shape? I'm afraid our politicians won't stop until we get there.


thinking said...

One problem is that politicians and often citizens are not serious about deficit reduction unless they also consider tax increases.

But no one wants to talk about that.

There will always be significant govt spending; no one can contradict that. There is no such thing as small govt and there hasn't been for ages. What we can aim for is smart govt.

The key is to get citizens to really consider what they are willing to pay for and not to pay for and then accept the inevitable trade offs.

The problem in politics is that often people speak as if we can have it all for nothing...whether that be endless govt spending without paying for it, or endless tax cuts with no cuts in desired govt services.

Also, I still say, one problem the critics of all this spending have is that they have yet to define a credible alternative to attempt to solve our current problems. Let them speak out and offer something. But they cannot because there is no alternative, except perhaps to just let things fail.

rockwebmedia said...

Mainstream media ignored this slam of socialism, but Jay Leno slams Obama in this video with the c-word (communism):

thinking said...

Debt always carries risk, but sometimes debt is warranted.

For instance, no one doubted that the US running up huge deficits during WWII was not merited.

Here's an analogy: suppose a family has taken on some credit card debt, and knows it should pay it off. But then suppose someone in the family comes down with a catastrophic disease, like cancer. Would the family say, well, we cannot afford the medical bills right now, let's just let the person die? I mean, it's the fiscally responsible way. Or would they ensure the person gets the treatment, even if it runs up huge medical bills?

Suppose someone takes out a student loan and fulfills their dream of becoming a medical that a bad use of debt, or a responsible use of debt?

Here's another example, though I wouldn't recommend this: Jeff Bezos, when he started took out a huge load of credit card'd that work out for him?

The point is that sometimes debt can be used responsibly. Also, here's what we do know: if we don't take care of our health care costs, if we don't take care of the energy issue, if we don't educate our people, then we will fail economically.

So sure this debt is unsettling, but if it does represent an investment in our future, it can pay off.

Contrast this with the Bush deficits, which were squandered and even used for counterproductive purposes which hurt the country, like the war in Iraq.

thinking said...

A few more thoughts:

1) most of the projected deficit comes from Medicare, Medicaid, and the hole in the budget from the Bush tax cuts. This speaks to the need for getting a handle on healthcare.

Also, where were the deficit hawks when the Bush tax cuts were pushed through? How much better off would we be without those tax cuts? The tax cuts didn't stimulate the economy, so the Fed did it through lowering interest rates...we see where that's gotten us.

2) Contrary to the speaker, you can borrow your way out of debt in certain circumstances. Example: suppose someone is in debt, but borrows even more to get an education, and because of that, makes more money that enables them to get out of debt.

Example: Jeff Bezos borrowed his way out of debt and became a billionaire.

Example: suppose someone starts a small business and takes out a loan to start that business. Still in debt, the business owner takes out another loan to expand, which enables the business to take in even more revenue, and thus to pay off the debt.

The British MEP makes a good point, and it sounds catchy, but it is not true in every case.