The World Economy Needs More Borrowing—Not Less

from Dissent magazine:



The World Economy Needs More Borrowing—Not Less
Fred Block - June 22, 2012 2:40 pm

Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

-Polonius in Hamlet, Act 1, Scene 3

Shakespeare intended for Polonius’s advice to his son in Hamlet to be comical. Even 400 years ago, the ideal of individual economic self-sufficiency he expressed sounded old-fashioned. Yet Polonius’s moralistic condemnation of borrowing—as subversive of thrift and self-discipline—is still alive today, and it could push the world economy into a catastrophic global depression.

The prevailing view is that an orgy of borrowing by households, governments, and financial institutions is what got us into trouble and that global recovery requires everybody to go on a low-debt diet: Debt is what got us into this mess; more debt couldn’t be the solution. But these disciples of Polonius simply do not understand how economies work. In the U.S. economy and around the world, our current problem is not too much debt but too little.

Yes, we did have an epidemic of reckless borrowing—or, more accurately when it comes to housing, of very stupid lending. But the antidote for foolish debt is not the nostrum of “no debt”; it is to increase the quantity of smart lending. Smart lending finances real investment—the kind that generates actual returns in future years—and it is the key to economic growth and prosperity. It is this growth that will generate the revenues necessary for individuals, firms, and governments to pay down those debts.

Both in the United States and abroad, the rate of investment today is well below pre-crisis levels. This shortfall is happening even though every nation needs improved transportation and communication infrastructure, more outlays for conservation and clean energy, and increased funding for education and health facilities. These are, moreover, proven smart investments; if planned well, they produce high rates of return. ................(more)

The complete piece is at: http://www.dissentmagazine.org/atw.php?id=787