Editor’s Viewpoint: Is there good debt and bad debt?
As a tightwad who has lived his life borrowing as little money as possible, I completely understand the sheer terror that comes with running up a deficit. Setting aside my fear and loathing of spending money I don’t have, I also understand that most of us couldn’t afford a house if we weren’t willing to do a little deficit spending. Or, as Popeye’s deficit-loving Wimpy would put it: “I’ll gladly pay you for the next 1,560 Tuesdays for a house today.”
Deficit spending must be OK in some areas because many businesses sell stock or borrow from private investors to expand with money they don’t have. Somehow, that type of debt is more acceptable, if for no other reason than there’s an implicit promise — a potential return on the investment. However, for many who support the gamble of investing in businesses, borrowing money to rebuild America’s roads and bridges or to create a national broadband infrastructure still raises hackles for several reasons, including because it runs up the nation’s deficit.
So, is some debt good and some bad? On a basic level, debt is fine as long as you can afford to pay it back. That, of course, depends on your income, which for most of us is less dependable during bad economic times, which, in turn, makes us less inclined to borrow money. But, when consumers don’t spend money — borrowed or otherwise — businesses decline, people lose their jobs and cannot pay their debts. The only sizeable consumer left is the federal government, which can spend money by issuing debt.
But government debt is bad for the economy, right? Not really, if what the government is buying creates value. Or, to say it differently, if the federal government is using borrowed money to expand the economy — or at least keep it from contracting more — it should be making investments that transcend the value of the jobs initially created, because to eliminate deficits, we ultimately need to generate additional revenue.
Is the government investing our money in the areas that will develop revenue? Many businesses are seeing growth by capitalizing on government- funded targets, such as expanding the green economy and broadband development. However, the jury is still out on long-term job creation, because that will require businesses and consumers to find the courage to invest and spend, ultimately adding the necessary muscle to put the economy firmly back on its feet.
Spinach, anyone?
What do you think? Tell us in the comment box below.