Unsustainable Trends Always End

Historical government spending in the United S...

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One of the better things I’ve read on the Web is from the Cobden Centre. Aimed at a UK audience, it is equally applicable on these shores. Since you probably won’t read it, here are my notes:

The is an ” intellectual malaise that lazily conflates government spending with the real economy and which conveniently ignores the fact that without a flourishing private sector, there would be no government and certainly no government spending to speak of.

“The reason our economy is knackered is because successive governments have indeed pandered to subjective worthy causes with money that those governments did not possess. Tomorrow and tomorrow and tomorrow, taxpayers will be paying the bill. It is not government money because the government doesn’t have any. It has liabilities only. It is taxpayers’ money.”

“Just as there has been no real austerity in the UK – yet – there has been no real deleveraging in the global economy at an aggregate level.”

“In debt markets we are seeing a catastrophic example of the law of diminishing returns.”

“The problem is insuperable. More debt has been created in the past forty years than will ever realistically be paid back.”

“Private investors, we suspect, have little or no conception of the extent to which the state is now the predominant player in the financial markets. Central banks control the money supply and interest rates. Central banking and commercial banking interests have essentially become fused. “

“Be careful, be very careful about the sort of government debt you hold.

The takeaway is that government spending cannot forever grow faster than the economy. When attempted, terrible things happen. You might argue about whether government spending is good or bad for the economy (some of both, I think) or how much governments should spend relative to the economy – but it is hard to argue that government spending should endlessly become a larger and larger percentage of the economy. That’s what’s been happening for quite a while and we may be near the point that terrible things happen.

 

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