SEARCH BLOG: ECONOMY
There are a lot of people saying that we can spend our way to prosperity. Others say we can only spend our way to debt. I don't believe either position is fully accurate without identifying the nature of the spending.
Spending is an act of moving one resource into another. We are exchanging value. We may create debt which is a spending of future resources... presuming there are future resources. But the act of spending neither guarantees future prosperity or future debt.
For example, during World War II our country spent a lot of future resources defeating enemies on two fronts. In doing so, it built a vast industrial and scientific infrastructure that positioned the U.S. to grow quite wealthy for several decades thereafter. The debt was an investment of future resources that would be generated by the acquisition of the means to generate the future resources.
Opposite that are expenditures of stored resources to acquire resources of diminishing value or spurious value that do not, of themselves, generate additional value.
One might argue that purchasing a vehicle or home is such and investment. Take money out of savings to buy a vehicle or home that loses value. But that argument overlooks the utility of the vehicle or home that can generate more resources... the ability to get to or have a place to work to earn money... delivering or displaying expensive articles to customers... any number of resource producing actions with the vehicle or home. Or simply to provide transportation and shelter for the family.More appropriate to this class of spurious spending are Ponzi schemes that siphon off resources from many to a few which then has a rippling effect through the economy. Resources are exchanged for little or nothing in return and lead to a general weakening of the economic network of those involved. We've read a lot about how that happened in the housing market and rippled its way into investment houses and banks and then industries and then jobs.
So, to address the question of can we spend our way into future prosperity, we must determine if the spending is to create an expansion of resource producing resources or if it is to siphon off resources from many to benefit the few. For example, will selling carbon credits that raise the cost of energy for many while reducing the resources that produce reliable energy generate other resources or simply dissipate present resources? Will raising taxes so that the government can expand programs generate future resources from those programs that expand the resources of the people or simple dissipate resources through waste?
There is no clear or constant answer other than "it depends." For example, in the Detroit school system billions of dollars have been spent and budgets exceeded by hundreds of millions of dollars. Yet the graduation rate continues to fall and the system is imploding. For example, billions of dollars have been spent to lift people out of poverty through programs that report the need for the programs to expand because there are more people in poverty. Are these investments or Ponzi schemes? Are we spending our way into debt or into productivity and prosperity? Are we creating jobs or siphoning off the resources needed to create jobs?
It appears we have to look at past results to gauge the prospect of future results. Will increasing government spending by trillions of dollars lead to greater national wealth or greater national debt?
We have chosen a course that is different from the spending of World War II that built up industry, science and commerce. What are the chances that more taxation and government programs aimed at solving politically defined social problems will result in greater national prosperity?