Tuesday, June 5, 2012

No Mr. Secretary, Borrowing Does Not Equal Wealth

I’m no economist.  I am not much of an expert at anything really, save some obscure video games and the .NET Framework, but I am also no fool when it comes to economic matters.  While I cannot talk the language of an economists, I can certainly understand what they are saying and determine whether or not it’s bullshit.

Case in point, I read this from former Clinton Treasury Secretary Lawrence H. Summers:

Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more, not less, and investing in improving their future fiscal position, even assuming no positive demand stimulus effects of a kind likely to materialize with negative real rates. They should accelerate any necessary maintenance projects — issuing debt leaves the state richer not poorer, assuming that maintenance costs rise at or above the general inflation rate.

There are several problems with this simple paragraph.  Whether they are intentional or not, I do not know but I’ll assume they are not as it is better to be an idiot than a wicked liar:

  • Summers is assuming that the government operates like a business.  A truly free market business, however, does not have guaranteed profits in the form of direct confiscation from the populace using the end of a gun.  As such, it need not worry about any revenue issues so long as the tax source is maintained.  The only reason that it would have to worry about a lack of profit is because they are spending more than they are taking in.  The government also does not need to worry about losses, therefore, there is no direct way for their customers (citizens and residents who happen to be within the State’s line of conquest) to hurt the government’s bottom line.  There are plenty of other reasons why the government is not a business but I don’t feel like devoting this post to that.
  • Summers assumes that if the government does more infrastructure projects, then the economy will recover.  Unfortunately, in this he could not be more wrong.  If anything, the past decade has proven just how stupid and foolhardy economic stimulus plans have really been.  When Bush’s stimulus plans were issued, they did nothing.  When Obama’s stimulus plan was enacted, it only enriched his close buddies and has yet to have a significant impact on anything.  In other words, Summers is insane as he is proposing we do the same thing again after it already have been proven a failure.
  • Summers indicates that the rates on loans that governments can take are low and therefore a good deal.  This reminds me of some cheap car commercial where the announcer shouts “low APR!” as if low APR is justification for taking on new debt.  The fact is, taking on debt does not equal wealth as debt is not ownership.
  • The rates are low for government because they are the government and they can force ratings agencies to give them favorable ratings.  Remember when the Federal government’s credit rating was downgraded, only to be reinstated after government goons came after S&P?

The bottom line here is that government shouldn’t take on more debt, they should cut their spending, balance their budgets, and begin the process of becoming debt free.  Debt is slavery and if you owe people money, you are beholden to them.  A true representative democracy such as ours should have been prohibited from taking on debt in order to ensure no external influence.  Because when the day comes to pay the retired seniors or the lenders, who do you think that the government is going to favor?