Deficit Spending – when an entity’s capital outflows are in excess of its capital inflows.
America was built on the backbone of free capital markets and the stability of these markets to provide for development of wealth.
On a macro level, the United States of America has been a haven for capital from around the world. Due to recent actions, the United States has created doubt in the minds of the rest of the world. The question of whether or not the United States can be trusted with foreign wealth is now open for debate.
On a micro level, the people of the United States have mismanaged their economic affairs. The people have mortgaged their futures and their children’s futures by becoming a nation of debtors. This in itself has fueled the growth of emerging nations. Our ravenous appetite for foreign cheap goods in Wal-Marts across the country has sold us out. I can actually remember times when I was told that Wal-Mart was good for our economy because it kept inflation low. We were selling ourselves short for short-term gain. All of the people across this great country will no longer have money to go by Chinese goods when their manufacturing jobs are shipped overseas to China.
On a macro level more spending in the form of borrowing and printing money was regrettably necessary to pull us out of a downward spiral and the collapse of the financial system. The entire microeconomy was broken, individuals were not spending money. I am however unable to write off our system as a “dead man walking”. I think we have a lot of fight left in us. It will take the collaboration of both individuals and the institutions they trust to govern them to bring us back from the brink. We can make reforms that can elevate us out of the mess we are in. We can overhaul the way we earn income, we can make it easier for firms and businesses to inject capital into the system by taxing them less and by giving them incentives to pay their workers more.
On a micro level less spending on goods from overseas is necessary to reverse the trend of capital outflows. The less we spend on goods from overseas, the more we are able to right the sinking ship. A professor of mine once noted that America is like a big oil tanker sailing across the ocean, the more holes it gets in the form of capital leaving our economy and the less oil it gets filled up with in the form of foreign and domestic capital, the more likely it will be to sink. Make a decision that will be good for the whole, buy more American goods while sacrificing your 2-3% cost difference so that we can bring manufacturing jobs back to America.
The driving force of every economy is Labor and Capital, as our capital declines, our labor has to increase in order to keep our current standard of living. With more taxes and continued reliance on imports we as a nation and individuals will have to work harder to achieve the same things our ancestors achieved.