Fearless Money

I found a great site the other day which has helped cure more of my money fears. The Skeptical Optimist is written by an ex-fortune 50 executive with a strong interest in economics and economic policy. His site is the only one I’ve found which has side-by-side "national debt" and "GDP" counters. The main point of that is that debt is a relatively worthless number without the context of the GDP, and that the important number is the debt-to-GDP ratio.

Currently the U.S. is at about 65.5%, much less than many of the worlds great economies.

But on to the main point

The optimist argues that paying off the national debt will certainly cost big bucks for our children. If the average tax debt per capita is currently $2,290, it will need to rise to $9,828 in about 25 years. That’s scary, but not so once you realize that this is simply the status quo moved out 25 years at a 6% growth of the GDP. Get it? The numbers are huge, but the same relative burden that they are now.

He further argues that the best way out of debt is to raise our income rather than tightly cap spending.

In short, the right way to raise taxes on future generations is to raise their pay. The right way to raise their pay is through real economic growth. And the pathway to real economic growth includes growth- and productivity-friendly federal laws and policies.

He ends his article with the excellent points:

Wouldn’t it be unexpectedly strange—and invigorating—to see the fiscal debate shift towards how to raise everybody’s pay by fostering the creation of new, better jobs in new, better companies and industries, and by leveraging an ever-growing stock of intellectual capital? It would be a long-overdue change-of-subject, in my opinion.

Yes. It would change the subject from fear to hope, from pessimism to optimism, from “how to avoid deficits” to “how to make better investments in our future.” Anyone who has ever bought a home or grown a business knows that borrowing money to help fund good investments is perfectly sound financial practice. So why can’t our leaders get behind that simple concept? Wouldn’t it be refreshing if they stopped talking about deficits, and started talking about how they’ll work towards growth-friendly laws and policies—i.e., “good investments”?

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