Thursday, November 16, 2023

Still saying the same (after almost 14 years)

I re-post below mine of 20 February 2010, from my old blog, revised only slightly.

I should say that when I use the word "credit" you should understand me to mean "borrowed money". I use the word "credit" to distinguish borrowed money from earned money, because borrowed money comes with debt and the cost of interest. Earned money does not.

We use credit for money

I say debt is caused not by excessive spending, but by the use of credit. You think that's just silly. You think excessive spending causes the use of credit.

I agree: That can happen sometimes.

You: It happens all the time. It is why the federal debt is so big.

(I do not point out that if the Prodigal Son wastes his whole inheritance but not a penny more, he has spent excessively without using credit. Nor do I point out that the non-federal debt is bigger than the federal.)

Me: No. Excessive spending is just one cause of credit-use. There are other causes.

You: That cannot be. Excessive spending -- spending in excess of income -- always results in the use of credit. There is no other cause.

(I do not point out that if one saves 75% of one's income, and spends a frugal 30% of income by borrowing 5%, this also results in the use of credit.)

Me: Okay. But what you are telling me is: IF A > B THEN (B-A) < 0. That is a mathematical definition, and it is certainly true. But it is not a cause. The mathematical definition is true always -- even when we do not have a deficit. Why do we have deficits?

You: Well, the reason is corruption... the special interests... greed... liberal thinking... forgetting conservative principles. The reason is whatever causes spending to be more than government brings in.

Me: Oh, you are right about that: The reason is whatever causes spending to be more than government brings in. Yes, indeed. It may be that spending is excessive. Or it may be that spending is not excessive but is "greater than B" for other reasons. We will never solve these budget imbalances until we discover the real cause of excessive credit use, and fix that specific problem.

And what is the real cause of excessive credit use? The cause is economic policy:

  •  It is policy to minimize spending-money in the economy (to fight inflation).

  •  It is policy to encourage spending (to promote economic growth).

  •  It is policy to encourage the use of credit (as a source of spendable funds).

  •  It is policy to encourage accumulation of debt (by unintended consequence).


Why do we have all this debt? Because we use all that credit. It's policy.

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