Good Investment

Imagine you owned a business. It produces steady earnings but the market is such that projected growth for the next 5 to 10 years is low - 2%. There are capital improvements you could make which would increase productivity and increase earnings to 5%. Fortunately, your banker is offering low interest loans for such improvements - interest rate is below inflation and effectively zero. You can pay the loan out of the increased earnings and, in a few years, reap the profits. You take the loan, make the investment, and get written up in the Wall Street Journal.

This is essentially the situation the Federal Government is in. Job growth is slow and now looks to stay low for 5 to 10 years. GDP growth is well below historical averages and likely to stay that way. Ah, but interest rates are zero. If you borrow money and use it to make infrastructure improvements which make the overall economy more efficient more jobs are created. Those people have money to spend which creates demand for goods and services and so other people have jobs. GDP would grow at a normal rate and taxes would go up so you can pay off the loan.

You should take out the loan.

Of course, you should also put in place a plan to pay off the debt incurred by waging two wars without paying for them. Putting our tax rates back to where they were in the prosperous 90s will do most of that. We will need some extra income to cover the stimulus spending. Lucky for us, we also need to get our oil imports down and reduce the amount of fossil fuel we use; a carbon tax or cap and trade system will help with that and generate some income.

Give it some real thought and we can improve our economy and thus the lives of all Americans. Do nothing and we all suffer.