Tuesday, February 10, 2009

Do As I Say, Not As I Do

As an individual, let’s say you have no savings, owe more money on your house than it is worth, and have a 50% chance of losing your job in the next 12 months. Would it make more sense to:

a) cut your spending and save more money

b) take out another loan and spend more money

Most individuals realize that (a) is the best option. In other words, when times are difficult, shouldn’t there be a tendency for individuals to cut back and save rather than take on more debt and spend? Duhhhh, right? If that is true for an individual, shouldn’t it be true for your neighbors? If it’s true for your neighbors shouldn’t it be true for your town, city, and country? If that is true, why is the federal government attempting to take more money from taxpayers and investors in order to spend it? Shouldn’t the government be cutting its spending like everyone else? If the government decreased its own spending and took less money from taxpayers, wouldn’t that immediately allow taxpayers to save more money by definition? If the government decreased its borrowing, wouldn’t that free capital up to be invested in private companies that are productive? Additionally, if the government decreased its borrowing, wouldn’t that tend to lower interest rates overall? If this is true, isn’t Obama’s proposal literally the exact opposite of what he should be proposing?

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