About the Post

Author Information

Economic Development is . . . (increasing the flow) of capital through the community and reducing its leakage.

A Tangled Web

A man and a woman were having dinner in a fine restaurant.  A waitress, taking an order at a nearby table, noticed the man was slowly sliding down his chair and under the table, but the woman acted unconcerned.

Amazed, the waitress watched as the man continued, slithering like a snake, slid all the way down his chair and out of sight under the table.  Still, the woman appeared unaware that her dining companion had disappeared.

After the waitress finished taking the order, she came over to the table and said to the woman, “Pardon me, ma’am, but I think your husband just slid under the table.”

The woman replied firmly, “No he didn’t . . .  My husband just walked in the door.”

Deception today seems like it’s everywhere; we are bombarded by people, companies, and governments deceiving. It was Walter Scott that rhymed in 1808 “Oh, what a tangled web we weave…when first we practice to deceive.”

Let’s look at two terms that are often misused and confused (on purpose – yes to deceive) DEFICIT and DEBT. With respect to government budgeting, they have the following meanings: The deficit is the excess of expenditures over revenues in a single year. The debt is the accumulation of all previous deficits not paid off. In other words, the debt is like all of the water in a bathtub, while a deficit is a flow, like the water currently flowing from the faucet into the bathtub.

This is important because even if deficits are zero (as they’ve allegedly been in recent years for the federal government), the debt is still there. Typically, the federal government runs a yearly deficit in the tens or hundreds of billions of dollars, whereas the national debt is in the trillions of dollars.

The problem with both debts and deficits is that they tend to drive up interest rates (unless of course they too are artificially held down – an item for another article). This is because the government is competing with private borrowers for loans. The result is that government borrowing tends to crowd out private borrowing. Much private borrowing is for the purpose of making capital investments (grow the economy), so the long-run result of crowding out private borrowing has reduced economic growth.

Note to the reader – if you think what you just read about debts and deficits is political in any way shape or form then (reality check) you have been deceived.  Nothing in the proceeding paragraphs was written to favor or dismiss any political opinion; it is simply the factual definition and explanation of the words. Seems like Walter Scott’s one line poem cuts to the core today like it most likely did way back in 1808.

Advertisements

Tags: , , , , ,

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: