The $13 Trillion Bet on a Better Economy Tomorrow
In deficit debates, you hear a lot about how we're "borrowing against our children's future." The counterpoint being (crashes aside)since the economy has always grown more efficient in the past, it will continue to do so in the future and we can pay off today's debt with tomorrow's increases in productivity.
So where does this belief come from?
Last night the PBS Newshour explored that very topic with a great interview of Matt Ridley, author of "The Rational Optimist." It explains how, starting in the stone age, the combination of trading and specialization has led to greater prosperity. In aggregate, today we experience a far better quality of life than people did 100, 500, and thousands of years ago. One great example Ridley offers is how Louis XIV was rich enough to have 500 cooks. With the rise of restaurants, most Americans can access even more. Watch the video below for the full report and stay tuned to the end where this fascinating Q&A wraps up the piece:
"PAUL SOLMAN: OK, time for one last question, which prompted a surprisingly sobering answer.
Let's assume you're right, in the long run, onward and upward. But, at the moment, governments like ours, yours, Europe's, have bailed out institutions who took enormous risks. And we're going to pay for that in the future, because we borrowed against the future, as opposed to investing in our future. No?
MATT RIDLEY: I think that's a fair point. And I think it's clear that we have been borrowing too much in the West.
It's not entirely wrong to borrow against the future, because the increase in human prosperity enables the future to be in a position to pay it back. And you can invest in the things that enable it to pay it back. But, yes, in the West, we have overdone it. The rest of the world hasn't so much, though. And so I think it's quite possible that you will see an increase in prosperity globally, even if the West loses ground.
PAUL SOLMAN: Prosperity launched long ago by specialization and exchange, which, in the long run, Ridley insists, have yet to let us down."
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Tomorrow's increases in productivity
Investing in the future is the key to tomorrow's increases in productivity. America's post-WWII prosperity is due in no small part to borrowing to invest in education. The GI Bill was followed by unprecedented increases in scholarships and grants to the Baby Boom generation (spurred by Cold War rivalry). That kind of investment in higher education has diminished to the point where recently (Aug 10, 2010) the Wall Street Journal reported that "Americans now owe more on their student loans ($830 billion) than their credit cards ($827 billion)." Making students borrow to finance their educations, absolutely decreases the amount of postsecondary education they pursue. Innovation and technological advancement produce productivity. Borrowing against the future is not productive unless it funds sound investment.
So true
An excellent point, Anna. I don't know if a study has ever been done on this, but I wonder what the economic impact would be if we borrowed enough money to upgrade every elementary, middle and high school in the country to get them to where the top-ranked schools are now. Sort of a generational bet that would pay off in 20 years (well, maybe 24) when kids born today graduate college. We'd have no idea what new inventions or improvements would be made by this generation, but economic (and societal?) life would get very interesting if the performance levels jumped that high, that quickly.
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