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.


Precious Metasl Life said...

Right on Mike! I am right behind you. One other point though is that people look at things linear instead of growth. They see debt but don't see higher production as the population grows. We still have plenty of room and resources in this country and growth is the only way to fix this problem. We need to have more children, not less as as the doom prophets want. The more people we have the more we can produce and grow. A shrinking population will be the death of a country unless they have immigration. Luckily the US is still not in the negative population growth like the Europeans.

mike norman said...

Hi Miguel, nice to see you here! Yes, the world ditched single entry accounting 500 years ago, but you wouldn't know it by listening to a lot of economists and policymakers.

Precious Metasl Life said...

There is a lot that Peter Schiff says that I agree with and then a lot I don't. I don't really know what NNMS alludes to but there may be some extreme comment that must have set that off.

cuOnTheOtherSide said...

Is the main tool used by government to overcome debt is to inflate the economy?

mike norman said...

Loans create deposits. There are two sides to a balance sheet.

Fiscal policy is being used to address contracting output. (A weak economy.)

majestyx said...

Once again, Mike, do some research before you speak.

In a real, fiscally responsible economy, loans do not create deposits. DEPOSITS are used to create loans. Thanks to the fractional reserve system, every dollar deposited creates (or has the capacity to create) 10 dollars that can be loaned... which is one of the contributing factors that got us into this financial mess in the first place.

And as for the commenter's suggestion of having more children... you have got to be f'n kidding me! I suppose you are of the belief that resources are limitless. They are not prophets of doom, they are realists. Just because you don't want to hear it doesn't dismiss the facts.

Precious Metasl Life said...

It has been 40 years of the overpopulation theology and it has all been proven to be false. The call that there would be starvation at over a certain is am myth perpetuated by folks who don't read the FACTS! Here are some of the prophecy that have not come true and there are many more. Anyone who has fallen for this false claim is just a parrot and not a studious thinker.
115: How accurate have the predictions of individual population control advocates been?

The following are taken from the 1968 Population Bomb by Paul Ehrlich.

a) "The next nine years [ending in 1977] will probably tell the story." p 21

b) "The battle to feed all of humanity is over. In the 1970's the world will undergo famines-hundreds of millions of people are going to starve to death in spite of any crash programs embarked upon now." (Prologue)

c) "At this late date nothing can prevent a substantial increase in the world death rate." (Prologue)

d) "Each year food production in underdeveloped countries falls a bit further behind burgeoning population growth, and people go to bed a little bit hungrier." (p 17)

e) "A minimum of 3? million will starve to death this year, mostly children. But this is a mere handful compared to the numbers that will be starving in a decade or so." (p. 17)

f) "The world, especially the undeveloped world, is rapidly running out of food" (p 36). Compare the preceding statements about food with the food data in Chapter 2 of this book. Population Bomb contained no specific statements about resources that could be checked. Ehrlich did, however make specific statements about resources in Population, Resources, Environment, published in 1970, as follows:

g) The U.S. should by now have run out of reserves of crude oil, uranium, manganese, cobalt, copper, chromium, nickel, lead, zinc, tin, aluminum, gold, silver and platinum.

h) The world should have already run out of each of the following minerals: lead, zinc, tin, gold, silver, platinum, and should run out of natural gas, copper and tungsten about the year 2000, and crude oil shortly thereafter.

The preceding statements about resources should be compared with the resource data in chapter 3 of this book.

116: How accurate were the population controller predictions?

a) The world food situation improved by an average of 1% per year every year of the 20 years before 1968, the year Ehrlich wrote Population Bomb. Ehrlich did not mention this 20% improvement. In the nine years after Population Bomb was written, a time which Ehrlich claimed would be critical, every prediction about food made by Ehrlich was proven wrong.

Furthermore, the trends improved and went opposite of the way he said. Food production in the years since Population Bomb has continued to increase faster than population has increased. (SFv)

b) In the 1970's there were no major famines. The rate of starvation has probably been at least a thousand times lower than predicted by Ehrlich. In the most famous 1970's famine, in the Sahel, according to relief workers on the scene, the only human deaths were caused by the failure of people to go to where relief supplies were being distributed. There was always sufficient food available. According to UN data, there was no significant increase in the death rate in any nation affected by the famine. There was more grain carried over in storage inside the nations affected by the famine than there had been ten years before the famine. The famine was not significant enough to reduce population growth in the affected nations. (If there had been substantial famine deaths, population would have declined.)

c) There has not been any increase in the world death rate. In fact, there has been a substantial reduction in the death rate and an increase in life expectancy averaging at least four months longer life expectancy each year nearly everywhere. (DYv)

d) When made, Ehrlich's statement that food production was falling behind needs was exactly opposite to the truth. Each year since Ehrlich wrote Population Bomb in 1968, on the average, food production in developing countries has increased more than population growth. In fact, between the year Population Bomb was written and 1990, the average diet in developing nations, according to the UN, improved by 20%. Before 1968, according to the UN, fewer than 5% of people in developing nations lived in nations where the average diet exceeded 2,600 calories per day, while during 1987-1989, half the people in developing nations lived in nations where the average diet exceeded 2,600 calories per day.

The U.S. government recommendation for average calorie intake is 2,200 calories per day. By 1990, developing countries inhabited by about 86% of people exceeded this amount, while most of the remaining 14% of people lived in countries where the average diet was just slightly below the recommended 2,200 calories per day. (SF91, pp 221-223) (FN)

e) Ehrlich's statement about starvation was wrong, exactly the opposite of what had been happening and exactly the opposite of what would happen since.

f) Ehrlich was wrong and apparently knew it. In the later editions of Population Bomb, published when people could determine there was no widespread starvation during the 1970s, Ehrlich changed his prediction to state: "In the 1970's and 1980's, the world will undergo famines-hundreds of millions of people are going to starve to death in spite of any crash programs embarked upon now." His weakened prediction was still wrong; the food situation continued to improve.

g) Ehrlich was wrong about running out of minerals and energy. Reserves of energy and of nearly every mineral are at record high levels. Population control advocates intentionally misstate the mineral situation by not carefully explaining what reserves are. Reserves are the minerals that we know about that are cheapest to take out of the ground. They are used first because there is more profit in using them first. The total amount of a particular mineral may be billions of times greater than reserves.

These are just some of the FACTS. But these truths will not come to light as people with a vested interest in the Pharma Industry constantly use their funds to promote the false hoods so they can continue selling their drugs.

majestyx said...

I'm not sure who the parrot is supposed to be. Someone quoting from the website might qualify.

That being said, I didn't have Ehrlich, an alarmist whose ridiculous predictions speak for themselves, in mind when I made my post. Indeed, he has an agenda just as much as does.

Precious Metasl Life said...

FACTS speak for themselves. I went to that website where I can reproduce the facts easily. But I can get you many more verifiable facts or you can find them yourself if you look deep enough. I believe it was last year's UN documents where they clearly stated that there was no threat of overpopulation but of course not in those words because they wouldn't want to step on the big donors toes. SEEK and you shall find.