Growth, growth and more growth

Shannon Bohrer

(5/2012) Have you ever noticed that politician’s, political parties, economists, news anchors, news papers, editorial writers, spokespersons, radio talk show hosts, your local dentist and anybody else you can think of seems to believe that growth is the most desired action for mankind. Growth is supposed to be good for the economy, individuals, and local and state governments, and very good for the federal government, in that it will be our salvation from national debt. According to one political party, our national debt can be assuaged if we stimulate the economy. The stimulation will grow the economy, and then our national debt can be paid down. Of course the other party says the same thing, but the argument surfaces around the question: how do we stimulate the economy? The ideas are endless: ear marks, tax breaks, tax reform, tax more, tax less, investing in the future, statehood for Puerto Rico, balancing the budget and electing the non-incumbent party. But, if both political parties take turns running the country, and growth does not occur- then what happens?

The word growth generally has a positive connotation, at least from the perspective of individuals and groups espousing its virtues. Also, growth of one’s possessions or income is generally thought of as a good thing. However, if one’s debt grows faster than one’s income, the individual is thought of as a poor manager of their personal affairs. Suppose you have two neighbors: they both have similar employment and incomes, they live and own similar homes, and they even have similar backgrounds. However, they also have differences. One of your neighbors drives expensive vehicles, has all of the latest electronics, takes very expensive vacations, and appears to be living way beyond their income. Conversely, the other neighbor lives what most people would consider a frugal life-style, definitely living within their means. After the financial problems we experienced (just pretend it’s over), the neighbor that had everything puts it all up for sale. They always borrowed against their home, trusting that the value of their home would always grow. The frugal neighbor is not having problems, still living within his means. Is there a lesson here? Could the neighbors represent counties, states and/or even countries?

While growth can be good, economic growth is not always a good thing, and is not always immediately obvious. Economic trends in Frederick County, Maryland are a good example. Growth has helped create employment in the county, but it has also created traffic congestion, demand for more schools and need for county services. When growth occurs, plans need to be made for increases in roads, education and general county services. At times, growth will require more resources. And where do the county resources for the increases come from? The answer is simple: you and me. Does this same logic apply to the federal government?

Our neighbor to the south, Montgomery County, has experienced growth for a long time; property values have risen, along with property taxes and fees. Many people that currently live in Frederick County moved here from Montgomery County, because they could no longer afford to live in Montgomery County. Of course the migration from Frederick County to Adams County, Pennsylvania started a long time ago – and continues to this day. If we grow, do we need larger government? Promising less government and promising growth both at the same time may be very short-sighted. If a farmer wants to double their crop output, he will require more resources. What happens when Frederick County starts to look like Montgomery County? With the traffic jams we are currently having around Frederick, maybe it already does. Can Montgomery County grow anymore?

At the federal level, economic growth is supposed to reduce the national deficit. It is easy to see, therefore, why politicians want and expect growth. The last time the United States did not have any debt (meaning that the country did not owe anything to anyone) was under President Andrew Jackson. For almost 200 years, our government had no problems creating the debt, which will always be carried over and, providing the economy grows, will be reduced as a percentage of the economy. Besides, our debt is so large that attempting to pay it off with our current revenue and/or income is not feasible, unless our country goes on a starvation diet. And, if our leaders have relied on growth for almost 200 years to pay down our debt, why would they change now? Thinking conversely, as Albert Einstein once said, "The significant problems we face cannot be solved at the same level of thinking we were at when we created them."

Since its inception, the United States has enjoyed economic growth. During the 20th century, growth in manufacturing, industry, and trade created great wealth. A significant part of our growth was in exports to growing foreign countries—countries that needed our products and services. However, that has changed. The world has evolved and there are many countries that are very competitive with products and services. In fact, it would appear that many countries have also used our model of going into debt to either maintain a level of living and/or to stimulate growth. If the world, and I mean a large segment of countries and populations, is having financial problems and recession, why do we think we can grow? Even if we did have the products and services to sell, we have many competitors producing the same products and services, and the buyers are scarce. Maybe, just maybe, there is elasticity with economic growth. And maybe it has reached its limits.

So, if a politician tells you they have a plan to stimulate growth— like tax reform, tax more, flat tax, an ear mark tax and/or colonizing the moon— you should respond with the question: What happens if we don’t have growth? I wonder how much interest we have paid on our national debt since Andrew Jackson was president!

Maybe a different kind of growth would help.

"We find comfort among those who agree with us
 – growth among those who don’t."
 –Frank Clark.