Commentary: Put money back into household budgets
I wish to respectfully respond – as a liberal – to Mr. Waller H. Wilson’s recent commentary. He writes in support of the government borrowing money to fund infrastructure projects. In his commentary he cites an example of $100 cycling through various persons’ hands and why this kind of liquidity is good for the economy and more is even better.
First off, the example cited is not a true example of economic growth or stimulus. It is an a example of economic activity — which in and of itself is not stimulus. Three friends each mowing each other’s lawn and each paying each other $100 has no stimulus effect on the economy — it’s a zero-sum, three-way transaction. There is no net gain to society in productivity, no increase in production potential, no innovation, and no implied future revenue growth.
To follow Mr. Wilson’s example, if each neighbor is borrowing $100, then they actually are all simultaneously worse off. However, if one of the three neighbors collects the cut grass, sells it to a farmer to feed to his cattle, which then become meat products that are sold abroad, then in that case, there is stimulus and economic growth. Economists refer to this ripple effect as a multiplier effect. Infrastructure projects do temporarily speed up economic activity, and are great photo ops but they are not worth borrowing money for.
Here’s why: Although we pay a low rate of interest to our creditors (an average of about 1.8 percent per year) given the enormous size of the deficit, we are paying out about $250 billion a year as interest on the debt — not to mention to the principle. If we had better managed our finances and had no debt, imagine the gigantic ripple effect that that $250 billion would have if given back to the American taxpayer and plowed back into the American economy. The $250 billion would fund: half of each year’s Medicare bill, or one-third of each year’s defense bill, or almost all of our annual Medicaid bill.
We are paying out in interest six times — six times! — what we invest in education each year. There is a staggering cost in foregone opportunity and growth here at home due to our stratospheric national debt. Even at 1.8 percent per year, we as a nation are foregoing additional disposable income in everyone’s pocket and/or critical investments here at home which would benefit us all. And it gets worse — the Congressional Budget Office estimates that given current economic trends, our interest payment will triple (to $750 billion a year by 2024).
Since Mr. Wilson’s commentary was in response to Mr. Earl Cutlip who had wanted a liberal perspective, you now have mine. As a liberal people who aspire to use scarce taxpayer resources to make government work in such a way to benefit the greatest number of people possible (since the wealthy tend to do pretty well on their own) — I’d much rather be putting that $250 billion a year back into the household budgets of working class families to spend/invest on themselves, or, if it is to be spent, then use if for kids in schools, to fully fund Social Security, to make sure our veterans get better health services than fork it over year after year after year to Saudi, Japanese and Chinese central bankers who have no interest at all in what the burden of debt actually costs us as a society.
David Freese is a Front Royal resident.