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More spending by public, private sectors would stimulate economy

Posted: November 3, 2011 11:37 a.m.
Updated: November 4, 2011 5:00 a.m.

In August you ran an enlightening editorial on the U.S. government's revenue, appropriations, deficit, and debt levels for fiscal year 2011. By eliminating eight zeroes from each figure, thereby reducing trillions to tens of thousands, you brought the picture down to a scale the hypothetically typical Smith family could relate to; and you reasonably concluded that the unfortunate Smiths would "be headed for financial oblivion."

Fortunately for the U.S., and unfortunately for your argument, your leap to conclude that "So is the United States," only on a much larger scale, is unwarranted, and wrong. That is evident from the fact that the U.S. is borrowing long term at just over 2 percent, while the Smiths would be paying 18 to 36 percent, depending on, as you ask, "...which credit card companies are still willing to deal with them...?"

The U.S. is different from the Smiths, not just in scale, but in two fundamental ways: first, it has unlimited borrowing power that will enable it to sustain deficits forever; and second, by running active deficits, its spending increases purchasing power in the private sector. The Smiths cannot do that. Acting as though the U.S. is limited as the Smiths are encourages an austerity approach by our politicians that is harmful to our prosperity in both the short run and the long run.

For now, we need more spending by the government and by the private sector, to restore prosperity quickly and to create the human and physical capital that will enable continued prosperity in the future.

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