Prudence

 

I wrote the following “letter to the editor” on Feb 17, 2009

Prudence vs. Imprudence

A prudent man with income sufficient to service debt will barrow the last of his credit line in order to invest in assets that he expects will increase production and foster more income. That income will allow him to improve infrastructure, repay the loan and generate a profit. In the end his condition is improved, the debt is repaid and his credit is restored.

A imprudent man with income sufficient to service debt will barrow the last of his credit line and spend it on intangible or depleting assets (a new car, expensive vacation). While his income is sufficient to service the debt, the depleted condition of his infrastructure requires a capital investment. Credit exhausted, the infrastructure decays.

Our Nation is currently engaged in an experiment. We are a debtor nation. Once we barrowed money from our citizens to fund government expenditures which taxes could not cover. In recent years we have come to rely on Sovereign Funds – money from foreign governments – to make up for the short fall in tax revenue.

We are now embarked on an experiment that relieves nearly fifty percent of our population from the duty to participate by paying taxes. As our economy unwinds the most successful among us experience a daily depletion of wealth and income which results in a reduction in the tax revenue to the government. In other words, our ability to service the debt is reduced.

If our experiment fails and Sovereign Funds refuse to extend us credit, or if these same funds simply lose confidence in our capacity for prudent husbandry of our economy, our only recourse, to repay debt and run government services, will be to increase taxes. The increased taxes will take money out of the private sector. The taxes will go to our government which will be obliged to repay debt. Government services will suffer and people who depend on those services will suffer.

We all need to ask ourselves if the Stimulus Package is the most prudent use of the money. The answer is blowing in the wind, and the wind is rising.

 

That was four years ago.  Today we have over 8,000,000 individuals who have stopped looking for work, unemployment is at 7.9%; we face a plethora of additional local state and federal taxes, energy costs more now than at any time in our history.  Our national debt is $17 Trillion and growing.  At our current rate of spending it is conceivable that literally all the wealth in the world  will not cover our barrowing.  One muses; profligate or prudent?