I love economics. Most people don't. It is something that affects all of us, though, so it is something that I think is worthy of a post. Actually, I have two economic thoughts today (you can stop groaning now).
First, everyone in this country who knows anything knows that the United States has a staggering national debt. The severity of national debt is typically measured as a percentage of GDP, and the U.S. is at about 60% according to the online CIA factbook (I have read elsewhere that the actual number is around 70%, but you get the drift). This is not good, especially considering the nation's aging population and the future social safety net expenses that come with an older population, but a quick scan through the list should help identify one major economy which is far more screwed than the United States. As a percentage of GDP, Japan has three times the national debt that the U.S. does. Japan's population age is also more lopsided than ours in the United States is.
It's a morbid perspective, but for those of us in the United States, Japan is like the canary in the mine shaft. If our national debt is bound to damage our economy and standard of living, Japan's should go down the same path at least a few years beforehand. We may find out how the best ways to prepare and respond to excessive national debt by finding out what works and doesn't work in Japan.
It's weird that fifteen years ago Japan represented the United States' greatest economic competition, but in the not-so-distant future Japan could serve as the ultimate economic warning sign for all of us. If you hear people talk about the implications of high national debt and an expensive social safety net, just look to the Far East for the next couple of decades for answers regarding what we actually have to fear.
Second, as this is an election year, and one that features a slumping economy, we are apt to see both major candidates doing some economic posturing over the next few months. Unfortunately, since the average voter does not understand how market forces work, both candidates will ultimately focus on some of the things that are mostly pointless.
The New York Times has a very intriguing write-up regarding what the candidates' platforms would be if they were trying to win over economists rather than the standard voting blocs. I am not saying that I completely agree with all of them, but it is a worthy perspective.
Subscribe to:
Post Comments (Atom)
5 comments:
Dr. Wubbena from Evangel would probably love talking to you about this over coffee. : ) And it would give you extra credit.
Since I don't totally understand economics, I'll take your word for it. But like most american consumers, I would say things don't feel very good now.
I'm definitely not saying things are good now. I went to the grocery store this weekend and that trip felt anything but good. Frankly, I don't know how people with significantly more limited means than Golden and I are surviving.
I am saying that, if the amount of money our government owes will become the problem a lot of people believe it will become, we should find out when Japan's economy tanks. If there is rioting in the streets of Tokyo, that is the time to put the brakes on government spending in the U.S.
I don't understand either how the national debt affects our economy, other than it can't be good. Isn't it ruining the value of the USD?
There is debate as to whether a high national debt contributes to inflation. It does provide incentive to the government to print more money, so it can be used as an excuse to purposefully weaken the dollar.
The national debt affects the economy in a few ways that I can think of right now. I may be missing major ones, but I think I'm covering most of the bases here.
First, a low national debt is a sign of stability and stability reduces business risk and so provides more incentives for people to make business investments that ultimately provide jobs. A high national debt provides incentive for investors to put their money elsewhere and indirectly increases unemployment.
Second, as I mentioned, if the debt gets real bad the government might be tempted to print more money, leading to hyperinflation. Our weak dollar is the result of a real inflation rate of about five to eight percent. Imagine living in Zimbabwe where the official inflation rate is 355,000% (though some analists peg it much higher than even that). This almost completely negates the point of money.
Third, when the national debt gets high, that inevitably will cause higher taxes in the future to pay down some of the debt and interest on the debt, which does have a negative impact on the economy.
Fourth, a high national debt will make it more expensive to sell more bonds in the future, and thus give the country less budgetary wiggle room when unexpected expenses occur.
Finally, a high national debt will eventually mean that some government programs that are beneficial to society or the economy may be significantly reduced or eliminated to free up money to pay that debt.
All of this may not happen for years, and if the debt doesn't grow from where it is, it may not happen at all. It is something to watch carefully, though. It is definitely worth watching for any of the things I mentioned above to happen in Japan.
Post a Comment