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Thursday, November 18, 2010

Deficits As Investment

Nov 18th, 2010

by James Hayford

I cringe every time the I hear that the government should learn to live within it's means, "like households all over the country". So I was very happy to see Robert Reich take on this pervasive idea; that deficit spending is always bad. It has become an article of faith that even Obama seems to repeat in order to seem serious about the deficit. 

 Reich uses the example of households taking out loans to send their kids to college, to point out that sometimes going into debt in the short term, is the best way to get ahead in the long term. 

 I like that example, but I think that governments are more like businesses than like families. Many businesses use short term debt. And as we all know from the effects of the credit crisis, businesses that can't get credit must shrink or even go under. 
Reich goes on to say that the way out of debt is through growth. 

He worries that "budget-deficit mania will slow future growth if it forces government to cut the things that fuel growth – education, basic R&D, child health, improved infrastructure."

 Well put.

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