CommUnity of Minds — Donald Halcom writes: As I sit here pondering the current status of the USA, I am struck by the conclusion that all of the politicians, business men, and economist have reached. They all believe that the only solution to the current economic mess of the USA is growth. Only growth will solve our problems. In fact only sustained growth will do it. When all these people believe the same thing then I suspect that something is wrong. The mechanism by which the growth is to be obtained differs with respect to political persuasions, but it is always growth that will perform the miracle. The question then occurred to me —– Is sustained growth over decades even possible? Is such an assumption even valid?
The last time the world was in this predicament was after WWII. All of Europe and the Orient were in shambles. The USA had a national debt of more than its GDP like it does now. The USA had one advantage. It was the only economy left whose manufacturing base was still viable. The USA had essentially financed WWII for the allies by selling bonds.
In 1945 the national debt as a percent of the gross domestic product (GDP) was 109%. Over the next 35 years the debt was paid down by the government represented by all the presidents (Democrat and Republican) from Truman to Carter until the debt as a percent of the GDP was 33%. When Reagan was elected president things changed. The debt began to rise almost continuously till in 2012 it was 102 percent of the GDP. The last four years have given the most precipitous rise. The next graph shows the recent history. In about 31 years we have accrued a debt as a percent of GDP almost equal to the debt of WWII.
Since WWII the USA has become a different country. We now have a world full of economic competitors. Our old monopoly is gone. Europe, parts of South America, the Middle East, the Far East and a few countries in Africa have all become major rivals for resources and trade.
The above data indicates that politics have been a major factor in the increase of the National Debt but that alone was not the problem. The demands of Banks, Wall Street and Hedge Funds have been major factors in increasing our economic woes. The debt from 2007 to the present, indicate these factors. Some claim that had we used the proper governmental legislation, then the debt crisis from 2007 onward could have been avoided. This is true, but that is water over the dam. Mankind has never been omniscient and will not be so in the future.
A balanced economy is like a see-saw, if you put too much weight on one end, it stops working. This is not rocket science. Our economy became unbalanced when too much money flowed to one end. How did this happen? Here goes. (09/13/12)