Monday, December 13, 2010

Analogy for government debt.

I often contemplate the concept of government debt and how absurd it seems to be; yet every level of government seems to borrow money for its projects. Now the federal government is in such debt that failure is inevitable.

I hear the arguments that it is no problem, we owe that money to ourselves. Then i contemplate that we still have all the roads and schools and factories and stores that we had yesterday. They don't evaporate over night. What's wrong with book keeping that says we owe money to ourselves for all that stuff?

It is about false promises. Some day we will have to face the disappointment of not getting what was promised to us.
Here is an analogy to help understand it...
Let's follow a young couple who buys a piece of land to start a farm. They start with virtually nothing and work hard to create shelter and food. Eventually they build barns and houses, productive fields and workshops. They have lots of kids, hire lots of workers. They all grow into multiple generations on this productive farm.

For big jobs like barn raising, everybody chips in. People are told that if they help raise the barn, they will be well cared for (medicare) when they are old. To keep them working on the next project, they are told that they will get a certain amount of free food (social security income) when they are old. Those promises are so easy to make that they over extend themselves. When the time comes to make good on that promise, they find that the farm is just not productive enough to take care of all those non producers. People become extremely disappointed when the promises that they have relied on are not kept.

The farm wants to build another expensive project. It needs everyone to put time into it. You have been putting your spare time into creating a buggy. The farm says that if you put that time into their project now, some day they will give you even more help building that buggy. (That is the same as saving to buy a car. They borrow your savings and pay interest.) Well, that was so easy that they make the same kind of promise to many people. Pretty soon the farm simply doesn't have enough manpower to help everyone. A whole bunch of people thought that they had stored wealth; the promise of help getting that buggy built. They are very disappointed to find out that the promise can't be kept.

As the farm starts to realize they can't keep their commitments, they start to play all kinds of games to hide the problem and keep people's confidence. Those games eventually only make the problem worse. When people begin to realize that everybody else is beginning to realize the scam, they all scramble to get their promises fulfilled first. The whole situation gets very noisy.

Our federal government is very close to that stage. We who think that money in the bank is safe, or that the government will be able to do anything useful for us may be headed for huge disappointment.