Of Course We Need Economic Growth

Anson Burlingame, local conservative blogger and contributor to the Joplin Globe, commented on a piece I wrote (“Liberals Love Wealth“). His response included the following:

I have just completed a semester of study of macro economics at MSSU…

Not one word, not one textbook assignment, essentially not “anything” was taught about income distribution in the entire course. No “Keynesian vs Classical” theories, no debate of differing views over WHAT is the real income distribution, how do we measure it, what is “good” or “bad” income distribution or most important what to do about it.

That makes me wonder how the “science” of economics addresses that hot political potato of today…I only hear politicians and pundits opining on the matter. To me that is akin to political arguments over nuclear power without understanding to some degree at least the “science” behind such a source of electrical power…

As all of you discuss income distribution I offer this challenge to further consider. WHICH is more important today, growth in REAL production of goods and services that will SELL around the world, a competitive world OR redistribution of WEALTH, not just income, amongst various segments of America? CAN you achieve BOTH at the same time? I frankly don’t know the answer to that question nor have I “studied” such an issue in academia yet…

Anson

My reply:

Anson,

Your study of macroeconomics is admirable, and, like you, I would want (demand?) a discussion about what politicians and pundits argue about all the time: income (re)distribution, especially since, at bottom, what constitutes an economy is the way we collectively use our resources to produce and distribute goods and services.  I can’t think of anyone better suited to help us understand the issue you raised than folks trained to analyze the economy.

As far as how economists in the field address your question, there are think tanks, etc., on all sides that publish papers; there are economists like Robert Reich or Joseph Stiglitz or Paul Krugman (on my side) who write currently about your topic and appear on TV or radio, as well as countless others who have published works in the past. So, it turns out that economists do have a lot to say about the subject.

Among ordinary folks, talking about income and wealth  distribution is not really akin to talking about nuclear power for the reason that people don’t need a degree in economics to know what fairness-justice is (perhaps they do, though, need a course on John Rawls), and it is our collective sense of fairness (expressed through our political choices) that determines whether, say, we will spend X on redistributive social programs or nothing at all.

You asked which was more important, economic growth or “redistribution of wealth, not just income.” You also asked, “Can we achieve both at the same time?

I went back on your blog and looked at an exchange we had more than three years ago about “How Do We Pay For “STUFF” (your title). Your first sentence was:

I am not sure how the federal government can pay for all the “stuff” demanded by voters, are you?

My rather lengthy response (I was willing, in those days, to invest the time in debating you) included this sentence:

Without economic growth, there is no way to solve any of the fiscal problems.

I hope you read and reread that sentence I wrote three years ago, Anson. Often it is that folks on your side ignorantly claim that liberals like me don’t give a damn about economic growth, only about spending more rich people’s money. Hooey.

Of course growth is essential to doing the stuff we liberals want to do. We are keenly aware that too much taxation and regulation stifles growth, just as conservatives should be keenly aware (few are, though) that too little taxation and too little regulation stifles civilization.

But I said all that to say this: Of course we can have both growth and a more equitable distribution of wealth (and income). In fact, both are necessary for our national well-being. The economic story of America in the twentieth century is the story of how we grew into an economic badass and yet began to figure out how to divvy things up a little more fairly (at least until conservative thinking began to take root in government and media in the 1980s).

Now, just how we get more economic equality without negatively affecting economic growth is what makes public policy choices so difficult. However, we first have to agree—we liberals and you conservatives—that a more equitable distribution of income and wealth is a goal we should pursue. Very few on your side think so (beyond helping those who can’t help themselves), and that is the source of a lot of our disagreements.

I will agree with any conservative who believes that economic growth is the best way to fight poverty. The problem is that some among us inevitably won’t get much from that formula. Indeed, some will get left out altogether, for whatever reason.

What do we do about them? Their children? And what do we do about older folks who are no longer competitively productive?

I’ll give you a hint: we don’t leave them to fend for themselves or agonize in the streets. We should help them, provide for their children (bread, butter, and books), and give them some sense of security in their old age. In a civilized society, that is what we should do.

But those things are expensive. And to pay for them we need to get the money from those who have it. Call it redistribution, call it whatever you want. But in a myriad of ways we do it each and every day, and we should strive to do it better.

And economists can and should help us understand how to do so, and if your professor failed to even bring up the subject then you missed something important.

Duane

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19 Comments

  1. To All,

    IMHO, the difficulty here is not an academic understanding of certain selected economic principles. It is the way in which those issues have become parameters that wind their way through society and, more importantly, through our political system. For example, with all this debating how to keep us from “falling” off the fiscal cliff, there hasn’t been, to my knowledge anyway, a single request to the CBO or the GSA regarding the potential economic impacts on the country, REpublicans and Democrats, of ANY of the various proposals.

    The reason for this, it seems to me, is that both Obama and the House Republicans keep moving the targets. Obama is all over the map on what entitlements he would cut and by how much. He even added a new infrastructure stimulus package, some $80 billion, that wasn’t even in his original proposal. Meanwhile, the Republicans are hell bent for leather to coddle their crony capitalist buddies (not to mention Grover Norquist) by promising to cut out certain tax deductions and other provisions — but without naming them — in lieu of increasing tax rates on the rich.

    And therein lies the dilemma. Our political leaders are flying by the seat of their pants here. They are not interested in sound economic principles, much less such pesky economic jargon as “income distribution.” If they were, we wouldn’t be in this mess in the first place. They seem to be too arrogant, too concerned about breaking ranks, too shortsighted, and too willing to throw the country under the bus for the sake of political gain. I mean Congress has an approval rating of 10% for Christ’s sake! Does anyone seriously expect them to fix a $16 trillion economy? I, for one, am pretty sure they couldn’t fix a flat tire without setting the car on fire.

    No, I think Obama is highly motivated to help push the economy off the fiscal cliff so it would land right on top of the Republicans unless they give in on taxing the rich. After all, he has the mandate. And Mitch “Turtle Face” McConnell is due for some serious comeuppance after forcing almost every issue over the last four years into a filibuster and trying to destroy Obama in his first term.

    So, it’s not the economy, stupid. It’s Congress! (And, to a lesser extent, President Obama.)

    Herb

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    • Ooops. It’s the GAO, which is the Government Accountability Office, not the GSA, which is the General Services Administration.

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    • Herb,

      Look, most of the hard work has been done by the Simpson-Bowles commission and others who have examined these issues up close and personal. Some variation of their proposals will be at the heart of this deal is my guess (if there is a deal).

      But I disagree with you on your tendency to “blame both sides” for what is happening: “Our political leaders…are not interested in sound economic principles…” Both sides are not equally at fault. That, in my opinion, is what is wrong with the picture presented to the public, who, for now, rejects it by mostly blaming Republicans for any failure.

      But I couldn’t disagree with you more about President Obama’s motivations here. He is not up for reelection and he has exactly nothing to gain politically for himself by watching the country slide into another recession. I happen to agree that Democrats, if they so chose, could make this whole thing blow up in the faces of a rigidly ideological Republican Party. And, who knows, but that may have to happen over the debt ceiling debate to come. This hostage-taking has to stop (both parties have been guilty of that, I’ll grant you, but Democrats have never pushed us to the brink and threatened our financial worthiness).

      However, a failure to reach an ultimate deal will also reflect negatively on Obama, as he will be partially blamed for not being able to “compromise” with Republicans. And since all he has to worry about now, in terms of his personal stake in this, is how history will view him. Presidents tend to see agreements and successes as historically satisfying, not acrimony and failures.

      Duane

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  2. I do find it astonishing that someone could take a course in macro economics with no mention of the debate between Keynes and Hayek, something that has recently been called by an academic authority “the clash that defined modern economics”. Three months ago a book by a senior editor at the Times of London published a book on the subject to excellent reviews. Here are a couple of excerpts from Amazon.com’s principal “top 1000 reviewer”:

    This important book is more topical than I would have imagined just a few years ago. Economics students have studied John Maynard Keynes and Freidrich Hayek for many years, and the contrast between their views of the economy has fueled seemingly endless debate about the merits of government sponsored countercyclical economic policies, among other matters. If you ever took an economics course in college, chances are good that you studied at least some aspects of Keynes’ theories, the most popular of which are described in his 1936 book, “The General Theory of Employment, Interest, and Money.”

    And,

    I am not writing this review to promote Keynes’ or Hayek’s views. People should study both theories, described in this book and others, and then form their own conclusions. Although Keynes and Hayek disagreed on many things, I will close with a quote from Keynes that I think both men would agree with. “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” These words ring as true today as when they were written years ago. To learn a lot more about Keynes and Hayek, this book is well worth your consideration.

    I hope that Anson and others will take some time to refresh their understanding of the issues here. However, saying that leads me to comment on Herb’s point wherein he wishes for some expert agency such as the “CBO or the GSA” to analyze the potential economic impacts of the various proposals in the fiscal-cliff debate. While I agree that the effort needs to be made, it seems to me that this is not amenable to specific analysis. It is simply too complex. Rather, I submit, the general direction should be, and will be, determined by a general sense of “fairness-justice” philosophy, as suggested by the E.C. in this post. After all, there is zero hope that the average voter will read The Clash That Defined Modern Economics in our lifetimes. No, we must as a body politic decide what kind of civilization we want ours to be and then vote for politicians who advocate in the direction we choose.

    There has in fact been an evolution of culture in our times, confirming for me at least that Edward O. Wilson was right, that culture does evolve (or devolve). I was recently sent an email showing pictures of old 20th century magazine ads. Santa Claus with a cigarette. A baby drinking 7-Up. A wife serving breakfast in bed to her husband bedecked in a Van Heusen tie, caption: “show her it’s a man’s world”. A Marlboro ad, captioned “Before you scold me, Mom . . . maybe you’d better light up a Marlboro”. An ancient one captioned, “Cocaine toothache drops. Instantaneous Cure! For sale by all druggists.” “The Subaru GL Coupe. Like a spirited woman who yearns to be tamed.” Etc.

    In this debate I am on the side of Duane. It is as much about philosophy as it is economics and as sloppy as the process is, I detect that progress is actually possible.

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    • Jim,

      I see you are glass-half-full kinda guy — an optimist even. I, on the other hand, tend to be a cynic. But I also try to be a pragmatist. So, I guess my problem with this whole fiscal cliff thing is that it took decades of irresponsible actions by Congress to get us where we are today. Therefore, I believe it is somewhat nonsensical to think that this body of inept law-makers can undo all of that history in a few days and set us on a path to recovery.

      I suggested the CBO and the GAO because they have the expertise — an in-depth understanding of how the economy works — to take the various proposals and show all of us what the potential impacts might be under certain scenarios. In other words, they could provide us with a guide to the consequences of a particular economic philosophy. I mean, you wouldn’t want an accountant doing your open heart surgery now would you?

      The way I see it, it’s of no use debating Keynes or Hayak or Friedman or Adam Smith. We are where we are. And in this country the way we choose the “right thing” to do in terms of the national economy is through our democratically elected representatives. Need I say more?

      Herb

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      • @ Herb,

        I would add just a couple more blows to the dead horse here. First, I think you and I are not too far off on the topic of economics: I did agree that the “effort (technical analysis) needs to be made . . . “, and you agree that ” . . . it’s of no use debating Keynes or Hayak or Friedman or Adam Smith”. By “no use” I assume you mean that it won’t resolve the problem. But, I submit, it is of use in reaching political compromise over how to slice the tax pie. Secondly, you said ” . . . that it took decades of irresponsible actions by Congress to get us where we are today.” Actually it seems to me that it only took one decade because before Bush II the books were pretty well balanced. Hence some optimism. Thanks for responding to my comments, Herb.

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        • Jim,

          On your last point, I’ll give you the same reference I just gave Anson on his blog —

          As to the deficits, we could go back to the Reagan years. Here’s an excerpt from an editorial in the Washington Post dated June 9, 2004 (http://www.washingtonpost.com/ac2/wp-dyn/A26402-2004Jun8?language=printer): “The fiscal shift in the Reagan years was staggering. In January 1981, when Reagan declared the federal budget to be “out of control,” the deficit had reached almost $74 billion, the federal debt $930 billion. Within two years, the deficit was $208 billion. The debt by 1988 totaled $2.6 trillion. In those eight years, the United States moved from being the world’s largest international creditor to the largest debtor nation.”

          I’m sure you remember back in the day when Cheney said that under Reaganomics, “deficits don’t matter.” So, that goes back 30 years. And David Stockman, Reagan’s budget director, dates it back to Nixon. But I put it on LBJ. On his watch, we implemented a Medicare and Medicaid system that was unsustainable and liberalized Social Security benefits that only added to the problem. Today, Medicare has an unfunded liability of $25 trillion with Social Security close behind at $21.4 trillion. So, those obligations, $46.4 trillion and counting, plus the growing deficits and federal debt, are the cumulative effect of 5 decades of mismanagement at the federal level. So, that’s where I get my “decades” assertion. But, Bush43 didn’t help any, that’s for sure.

          Herb

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          • OK, I surrender Herb. The Clinton surplus was a chance outlier. Man, it was really snug and comfortable under my rock – until you turned it over. 🙄

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      • Herb,

        1. Who could have guessed you “tend to be a cynic”?

        2. As I indicated earlier, the basic deal—if there is a comprehensive one—will resemble in some fashion all the work that has been done by Simpson-Bowles and other groups. Thus, we already have some understanding of how the scoring of any proposal will go, at least roughly.

        3. Yes, “we are where we are.” That’s true. But it makes sense for the public to understand how we got here, especially considering just two presidents ago we were running budget surpluses. (And you know what I think about how we got here.) It makes sense for folks to know (those who will listen and learn) because then they can be better informed voters, as they make those choices you mention and elect our leaders.

        4. And it makes sense to understand that while we are struggling to get back to economic normalcy, we still need some stimulus to help with demand and unemployment, whether you call it Keynesianism or Krugmanism or Obamism. Folks need to know that the Democratic Party’s stimulus ideas are grounded in sound economic thinking, such thinking going back almost 80 years.

        Duane

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        • Duane,

          This discussion thread is already too long to add any more. I would just end my part in it with the sage advise from Casey Stengel: “Never make predictions, especially about the future.”

          Herb

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    • Jim,

      I appreciated that dose of reality about Keynes, Hayek, and the limits of economic analysis.

      I want to say this about the issue: no one knows exactly all the causes and all the remedies for downturns in the business cycle, but Keynes has the advantage in that his idea that fiddling around with demand and employment (doing macroeconomics, say) were possible, uh, even desirable things for economic planners to do.

      His ideas seem to me to also have the benefit of simple common sense (something has to replace a loss in aggregate demand brought on by recessionary forces in order to address the resulting unemployment).  Hayek, as far as I know, didn’t care all that much for macroeconomics and, thus, he turned out not to be that influential in the development of our economic policy thinking.

      I also want to say something about the way non-economist supporters of Hayek often talk about these issues. Many of them tend to view unfettered free markets as morally superior and therefore more desirable instruments. My understanding of Hayek is that he did not view them that way, but, reflecting his Austrian-school roots, simply saw them as how the real world functioned, sort of like how an evolutionary biologist does not make moral judgments about the “law of the jungle” or survival of the fittest.

      I paraphrase your point, though, that since things like recessions tend to do negative things to our fellow citizens, and the most recent one was a helluva recession, then we have to consider the morality of doing nothing, of allowing the free market to hit bottom and hurt whom it will hurt. And when we stop and consider the morality of standing by and doing nothing—as some on the right have advocated—of doing nothing while folks, mostly through no fault of their own, suffer at the hands of a dog-eat-dog economic system, most of us inevitably conclude that we are, and have a moral duty to be, Keynesians.

      Duane

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      • I think you said it very well here, Duane. And when you appeal to “simple common sense” in discussing economics (how outrageous!) you cause me to recall a science fiction story that stuck in my mind from when I was young, title and author long forgotten. The author envisioned a new type of society with a new type of economics and, probably because he knew it would never work here, he established his vision on a planet different from Earth.

        The colony was supposedly populated with enlightened types who thought outside the box from the get-go, and the basic premise was that they did away with money. It was a frontier planet and virtually everybody was able-bodied and had some talent or other. The way it worked was that work was done and materials were furnished based on “myobs”, which was short for “my obligation”. A cobbler supplied shoes to a farmer who restocked his larder, for example. It was an honor/barter system enforced by social pressures. In this system it was understood that anyone who failed to repay an obligation would be socially shunned (and, isolated from all resources) and so, the author surmised, the system worked. The story was so unique that it stuck in my head all these years!

        It wouldn’t work in the real world of course because Pandora’s ills are roaming the Earth, but one thing the story reminds is that money is nothing but a mechanism for keeping score of obligations. So long as people keep working, everybody benefits, and the more efficiently they work, the more the benefit and the more slack the system has to support those who for no fault of their own are unable to contribute, the elderly, the sick, the disabled. When viewed that way, Keynesian theory makes even more sense – at least to me. Under austerity, the wheels grind to a halt and that hurts everybody, maybe even the 2%.

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  3. ansonburlingame

     /  December 8, 2012

    To all,

    Duane answered a comment with a blog and thankfully posted a link to this blog on my web site. I inadvertently did the same by just posting THE RIGHT THING AND POLITICS, but before I read this reply. My approach in that blog was long term, big picture and yes “philospohical” to a degree.

    NO economist or political pundit (all of us) can denigrate economic growth. We must “grow or die” as I have said before. But as well we must consider exactly what we mean by economic growth, REAL economic growth if you will, not some political spin on the topic. Almost all economists (I know of NONE that don’t) agree that REAL GDP is the correct measure yet all we usually hear from politicians is the rise and fall of just GDP. A recesssion is technically ONLY a fall in GDP over two quarters, negative “growth” in GDP.

    Well I submit that we have been in a recessionary economy since 2007 and have YET to grow our way out of it. REAL GDP has gone down or been stagnate 4 out of the last 5 years. We are “stuck” in a “bad” economy which Americans understand whatever we as pundits or economists might call it.

    And yes, Jim, I DID learn a little about Hayek and his arguments with Keynes. My point was that such discussions NEVER considered huge and unstainable DEBT. NO professional economists has INCLUDED debt consideration as a major problem AND income redistribution TOGETHER to come up with a creditable solution to solve BOTH problems simultaneously, or at least that I have heard about or studied. AND I repeat, a college level course did not even ADDRESS the issue of income distribution in a macro economics course. My guess is such does NOT just apply to MSSU as well.

    To suggest Reich as the source of such a NEW theory of economics is laughable in my view. Reich in particular is so onesided to support high wages, unions, etc., etc. that he is called a communist by some. No I don’t think he is a communist, but a far left social democrat, you bet. But you would have to read my latest blog to get the details on such a comment.

    But I have written too much herein already. I leave my concern with this simple comment. I will NOT object to any and all social remedies you might consider to “help” whomever AS LONG AS YOU SHOW HOW TO PAY OF THEM each step of the way, except in a dire national emergency, like WWII.

    Anson

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  4. Arthur Okun (an economist of note in the Johnson administration – take that as you will) argued to treat redistribution as like using a leaky bucket to move wealth from one group to another, mostly wealthy to less wealthy.

    If you accept, as I think everyone here does that some transfer is appropriate, the question becomes the leaky bucket: the receivers of the money may work less and not gain as much as the contributors put in; or the contributors may also slack off, if they are taxed on a percent of earnings.

    So one question is one of facts: how big is the incentive effect? Does it mean while the intention of redistribution may be good in practice, but the benefits are mostly lost by the rich being less rich more than the more are less poor? How leaky is the bucket. In fact its hard to be sure, but I think for the impact of tax increases back to those of 12 year ago its pretty small. Moving to 70 or 80% marginal taxes, I’d be hesitant to be so sure. In the end though one’s political preconceptions tend to color research, this factual question we can at least narrow the band different views I think on how leaky the bucket is.

    The second question though is more of principles. How much leakage in the bucket are we willing to tolerate to make the least well off better off? Some conservatives seem to want to be little and some even seem to think: none. If we could at least move away from that polar position, maybe we could make more progress, but this question is ultimately not resolvable by research on facts I think. It is a question values.

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    • Bruce,

      Interestingly, Okun’s leaky bucket metaphor ties in nicely with some thinking I’ve been doing over Nicolas Kristof’s latest column in The New York Times about SSI and how it, allegedly, is negatively affecting behavior in Appalachia.

      Some leakage, obviously, is inevitable. We are after all talking about “transfers,” and there is a cost associated with just the mechanics of it. But it is the leakage that results from behavioral changes in the contributors and receivers that policy analysts and lawmakers need to consider (and it should at least be somewhat objectively measurable, despite the fact that, as you said, “political preconceptions tend to color research”). And we voters need to consider the results of that analysis when we think about our philosophy of government or, lacking one, when we consider which party to embrace.

      It is, though, ultimately a question of values, but the goals that derive from them ought to be informed by what is practical. You are right to notice that some conservatives want either no welfare state or a very minimalist one. That is obviously untenable in an advanced society like we have today. It might have been desirable as settlers and prospectors and other adventurous folks were cutting their way across the country so long ago, but it won’t work now.

      I say that it is “obviously untenable,” but that doesn’t explain the existence, in powerful places, of so many who don’t think it is so obvious, does it?

      Duane

       

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  5. ansonburlingame

     /  December 9, 2012

    Bruce,

    In fact there are TWO buckets that leak in my view. The one that “carrys” money from rich to poor AND the bucket held by the poor that collects the transfer. How much of the “money” in that last bucket, the one held by the poor, is used wisely and directed whenever possible to no longer have to use any bucket to receive transfer money (entitlements)?

    But in fact the problem of “leaky buckets” of either sort is not the heart of the problem. The REAL problem for democracies today is the simple fact that the first bucket, the “entitlement bucket” if you will, is filled (40% of it) using borrowed money. And that borrowed money is NEVER paid back, in principle. We only (for almost the last 52 years) ONLY paid back the interest on that debt and have to borrow around 40 cents on the dollar to do even that interest payment as well.

    Anson

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  6. ansonburlingame

     /  December 9, 2012

    To all,

    By the way there is an economic term for “leaky buckets”. It is called “crowding out”. It is part of the debate between classical and Keynesian economists, but you never read about such publicly.

    Anson

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  7. ansonburlingame

     /  December 11, 2012

    To all,

    One final point in this reasonable exchange of ideas on economics.

    First, economics as a “science” is neither moral nor immoral. Economics is essentially a study, academically, of how trades are caused. One buyer buys from someone else that sells, “stuff”. Macroeconomics merely takes that personal level study to a much larger level of nations. But supply and demand still function, micro or macro, making little difference.

    Supply and demand can reach a “natural” intersection. The entire realm of economics depends on such happening. Prices ultimately reach a level where demand is satisfied and an equilibrium is reached (supply and demand curves cross).

    Our “prices” have increased by 685% over the last 52 years (just check the CPI tables published by the government) yet the real growth of the production of goods and services has only grown by some 300+% over the same period of time. As well debt has increased by close to 1000% over the same period.

    From that I conclude that our “equilibrium” economies over that period have been achieved by borrowing more and more money, or by “printing money”.

    If anyone wants to really grow an economy, sustainable growth of an economy, then we must grow the production of goods and services and SELL them. Reduce economic indicators across the board to “real” things (discount inflation however small it might be year to year) and we find an American economy over the last 52 years with more and more borrowing, more and more debt and no end in sight.

    Cut through all the political spin and face such reality and at least I see a “cliff” in front of us, somewhere in the future. Solution? Produce more REAL stuff and then live within our means of such productive efforts. Someday we will HAVE to do so. WHEN becomes the real question.

    Anson

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    • A) Republican policies put us in the shape we’re in, in terms of debt.

      B) We can produce all the stuff we want, but someone has to have the money to buy it. If most of the profits go into the pockets of rich folks, who will have, on a large scale, power to purchase goods? Concentration of wealth in too few hands spells doom, no matter how you look at it. If you adore capitalism, then you shouldn’t be willing to tolerate a ridiculous wealth disparity.

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