Oh, How We Owe!

Conventional wisdom these days says that our debt is too large. 

And indeed it is. But the real question is, "compared to what?"

The following chart shows that as a portion of GDP, our debt is actually lower than it was after World War II.

Note that in the above chart, the drop that comes after WWII was due to a giant government spending program called the "New Deal".

Yes, we actually spent public sector funds in the face of a huge Debt-to-GDP ratio, and the result was to spur such economic growth that we grew a strong middle class, and our economy grew at such a rate that we lowered our Debt-to-GDP ratio and became the world's strongest economy.


In order to lower the deficit, we can either choose to cut spending or increase revenues.  Only one of these will work, however, because we are in a depression. Cutting spending will give the middle class and poorer people even less money to spend, further reducing Demand's ability to keep up with Supply.

So, we need to invest public funds to spur economic growth, so that the majority of people in the USA will have enough money to buy things, which in turn will be an incentive for investment on the supply side.

Our debt ratio is far less than many other countries, and less than the hole we dug in WWII. We have seen what happens when countries cut spending too rapidly, the austerity programs in Italy, Greece and Ireland have drastically hurt those countries, while our government spending programs pulled us out of the debt following WWII so that we grew a strong middle class and became the strongest economy in the world.

We should learn a lesson from history and invest public sector money in order to spur demand.

Economic growth and controlled spending will lower our debt.