Thinking About the Economy: Solutions | Clarissa's Blog

Thinking About the Economy: Solutions | Clarissa's Blog

I think you may be making a very basic error right here:

“Governmental spending is out because that’s all borrowed money and we’ve already seen what it costs to pretend that fake money is real.”

Government spending is in fact very different from bank loans.

All governments in fact do need to borrow some money to some degree, because only short term economic sustainability is possible otherwise. Japan has one of the highest govenment debt rates in the world, but this does not imply a bubble economy.

On the other hand, a bank loan often produces a bubble, because certain items are valued as more than they are actually worth. Interest rates rise, and that may be problematic.

Government spending by itself is different as it puts money into circulation -- it puts it into the hands of consumers, who can then buy the varied and new products manufactured. This, in turn, supports the continuation of various industries and enables them to compound capital. With the capital they get, they can innovate and come up with newer and better product designs. But it all depends on the everyday person, the consumer, having money in their pockets to begin with.

Government spending may also facilitate the maintentance of existing industries by protecting the more vulnerable ones with tarrifs or by giving corporate subsidies. This assures that people can be employed by those companies locally, which means that those employees will also have more money in their pockets and can consume from other local companies.

So, in other words, from what I can gather, the running of a capitalist economy is a fine balancing game. You do need to take care of the poorest to make sure they can spend money to keep the whole thing going. That is the point of government spending. If the government stops intervening, the whole thing falls apart and cannot be sustainable in the long term. A dilligent government will borrow what it needs to, to sustain its economy. That is perfectly rational and relates to trying to support this balancing act. If the government stopped protecting the weaker people and industries, out of some purist notion, for instance the idea, “capitalism runs itself”, they will soon find out that an advanced economy cannot be sustained on the basis of a one-track idea.

It’s always, always, always a question of balance!