The world is filled with misguided concepts. Just take a moment to observe, and you’ll quickly notice a plethora of poor ideas. Ironically, the more flawed an idea is, the more it tends to gain popularity. Here’s a brief rundown of some examples…
From rap music and corn ethanol to the United Nations and pop psychology, examples abound. Think of Obamacare, questionable loan practices, the efficient market hypothesis, oversized soft drinks, and precarious financial instruments. The list continues with skinny jeans, central banking, collateralized debt obligations, negative real interest rates, and more.
As evident, this is just a sampling of the abundant bad ideas that have gained traction over time.
Today, however, we focus on one particular idea that stands out due to its considerable popularity: funding extensive government expenditures through substantial government debt. This practice, which began in earnest around a century ago—specifically in 1913—has led us to numerous associated misguided concepts.
More Bad Ideas
Before significant government borrowing became the norm approximately 100 years ago, it was commonly expected that families would sustain themselves through their own contributions to society. Over the years, however, this norm shifted to the problematic notion that individuals should rely on the support of others. Presently, approximately 49 percent of American households now receive government assistance.
Along the way, various flawed ideas emerged to justify this debt-based spending model. One such idea is that deficit spending somehow leads to prosperity. The unfortunate truth is that massive public expenditure creates an illusion of wealth by borrowing from future resources—something that both politicians and voters find appealing.
However, as these debts accumulate over time, the harsh reality of mathematics comes into play. Eventually, the economy struggles to support repayment, leaving default or money printing as the only feasible options. Politicians almost invariably lean towards printing money, as it conceals the default from public scrutiny, leading to blame being placed on greedy capitalists for rising prices.
Another flawed justification for this debt-based model can be traced back to the New Deal policies, which ballooned U.S. government debt. The intellectual architects of these policies, led by John Maynard Keynes—who is often seen as the father of public spending—developed a theory so reckless that it absolved politicians of responsibility while leaving their opposition baffled. They proclaimed that “We Owe It To Ourselves,” suggesting that large amounts of public debt were inconsequential. The reality today is far different.
Now, we owe significant sums to various foreign entities: $1.2 trillion to China, $1.1 trillion to Japan, $263 billion to oil-exporting nations like Venezuela, Iran, and Iraq, and countless others totalling billions more. This raises critical questions: Is it still inconsequential that we no longer ‘Owe It To Ourselves’? What does it mean to ‘Owe It To Others?’ Perhaps one day we will find out.
How to Erase the Federal Debt and Other Bad Ideas
This leads us to another perplexing idea that surfaced about a decade ago—the notion that ‘deficits don’t matter.’ This infamous statement from former Vice President Dick Cheney suggested that deficits were irrelevant to voters. In practice, this was validated by President Barack Obama’s tenure, during which he amassed $1 trillion-plus deficits for four consecutive years before being re-elected.
Just when we thought we had encountered all possible ridiculous ideas, another surfaced over the weekend. Currently, Federal borrowing has once again hit the debt ceiling. The Treasury is now using what it calls “extraordinary measures” to create a temporary reprieve before it can no longer borrow more funds to cover spending already authorized by Congress. The latest ridiculous proposition? To solve the debt ceiling crisis by minting a single platinum coin worth $1 trillion, thereby erasing the debt ceiling dilemma.
According to Charles Riley of CNNMoney.com, this approach would eliminate the need for political disagreements and prevent market instability. The idea is simply to use this one trillion-dollar coin to settle obligations.
Have you ever encountered such an absurd proposal?
Did Riley even consider how a $1 trillion coin, devoid of any real wealth backing, could circulate without devaluing the dollar? If this solution holds, why stop at $1 trillion—why not obliterate all debt with a $16 trillion coin?
The idea’s origin, if you can believe it, comes from New York Congressman Jerrold Nadler—a glaring example of the problems afflicting Washington today.
In conclusion, it is crucial to remain vigilant about the many flawed ideas that permeate our society, particularly those surrounding government spending and debt. Understanding the implications and realities of these concepts can pave the way for more sustainable and responsible financial practices in the future.
Sincerely,
MN Gordon
for Economic Prism
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