The graph above comes from Henry Blodget’s convincing if occasionally facile argument about just what is wrong with the United States economy. Notice that the line starts at zero, then start stocking up on canned food. In the years of our so-called decline, gross domestic product has steadily increased. What has increased much more quickly, however—what’s really seen an unprecedented boom since the Carter administration—is debt. We borrow money way better than we make it. We loan money way better than we produce goods and services. By several conventional metrics, the American economy is growing nicely. It’s just not growing as fast as our appetite for free stuff from the future. See what the 70-year growth of GDP and debt look like as separate lines after the jump.
Alexis de Tocqueville remarked that a democracy “can only exist until the voters discover that they can vote themselves largesse from the public treasury.” De Tocqueville was amazed by the futuristic developments of the early 19th century, so he can be forgiven for not anticipating the MasterCard. A culture that equates democracy and capitalism can exist only until the people of the present discover that they can borrow everything they want from the future. Household, corporate and government debt are all way up over the last seven decades. Coincidentally, our children’s prospects are down.
Here is where a simple person would suggest cutting ourselves off—balanced budget amendments, limits on personal debt as a function of income, strict corporate accounting regulations, the works. As slightly less simple people, we know that is not a good idea. A household can cut up its credit cards and stop spending money it doesn’t have, but a household does not employ several thousand hundred thousand construction workers and sales clerks.
Abruptly stopping our spending would solve the problem of mounting federal debt the way getting sucked into a jet engine solves male pattern baldness. Government dollars, borrowed or otherwise, feed growth. Consumer and corporate spending, destructive or wise, helps the economy do things like recover from massive recessions. If our goal is to solve an economic problem that has left the median household no better off than it was in 1992—and put half of us in worse shape than that—then we need to preserve growth.
Yet a no-tomorrow emphasis on growth through spending is what created the problem in the first place. And now that we have borrowed our way into this mess, the Federal Reserve seems to think we should borrow our way out. Interest rates are already so low that A) a fellow like me can get 1% interest for saving or spend his money on a sweet used Bronco, and B) the Fed can’t really lower them. So the central bank has signaled its intention to do more of the same plus quantitative easing, a policy that is perfectly sensible to people who understand macroeconomics but terrifying when you read about it on Wikipedia.
I am a Wikipedia kind of guy. I don’t know the solution to America’s economic woes, unless you count such problem-identifications as “entitlement reform” and “deficit reduction” as solutions. I do know, however, that the nature of the problem as articulated in Blodget’s article offers a damning assessment of our national character. For a century and a half, this country weathered civil war and railroad baronry and the growing suspicion that Chinese immigrants might be people, and we still managed sustainable growth over any 40-year period. Then we invented the credit card and treated ourselves into oblivion.
Perhaps that also explains why the most recent downtown has remained so persistent. We’ve tried every spending oriented solution we can think of. We’ve argued over whether it’s better to extend unemployment benefits or lower taxes. In a period of significant economic crisis, we’ve tried free money from the government and giving less money to the government, and we’re all out of ideas.
Here is a horrifying thought: what if when the economy crashes, the way out is for everyone to give up more money and receives less? What if the key to a prosperous future isn’t everybody pays lower taxes, as Republicans suggest, or everybody gets help, as Democrats suggest, but everybody suffers now? My grandfather used to remind me that you cannot borrow yourself into prosperity. If borrowing is getting something now and not paying for it until the future, maybe prosperity comes from paying for stuff now and not getting anything until later. Maybe the way out of systemic economic collapse is slow and miserable, and maybe that is the one possibility that no leader in our little democracy wants to broach.