The budget deficit creates wealth

The budget deficit creates wealth

The public debt is a liability for Uncle Sam but it is an asset for the
people who own Treasury bonds. If they feel rich they go out and buy stuff.
And that creates real jobs and prosperity.

The idea of paying back the debt is a Mickey Mouse idea. All you are doing
when you pay back the debt is taxing assets away, you are making people
poorer. The Fed then reacts by keeping interest rates too low too long. And
that fuels the bubble.

Paying back the debt was tried in the late twenties and it led to the great
depression. FDR kept the depression going year after year after year by
raising taxes.

The economy eventually recovered after the war because thanks to Mr. Hitler
FDR had to create a huge deficit.

Trying to pay back the debt was again tried during the late nineties. That
led to another bubble and recession. Fortunately the current administration
was able to enact a tax cut that raised the deficit and the economy is now
recovering.

In an advanced economy people who listen to their financial adviser want to
have assets before they spend their discretionary money. If they are short
on assets we have an "overproduction" crisis and unemployment.

Of course there are better ways to create assets. The stock market would be
the ideal because it would lead to more investments and higher productivity
gains. But for Wall Street to go up in a significant way, profits would have
to go up in a significant way.

That is difficult to achieve in a democracy because the special interests
that eat into profits, unions, lawyers, judges, regulators etc. have many
friends and are organized to defend their turf.

Democracy is not a cure all. It is just less bad than other options.


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