Monday, August 21, 2017

Economic Growth Does Not Equal Economic Strength

Today Projects Are Being Built That Are Destined To Fail
It is very important people understand that economic growth does not equal economic strength. Quantity simply does not make up for poor quality, we are talking about two totally different animals. While economic growth appears robust and a solid GDP number can result in a feel-good moment that builds consumer confidence it can also mask growing weakness in various parts of the economy. We should be careful we are not sold a bill of goods or mislead by those promoting a message that "all is well" and using the term “economists say” implying these people are experts but at the same time failing to give greater details or even mentioning their names.

Recently while grabbing a handful of junk newspapers for recycling I could not help but notice the headline, "Indiana Needs Immigrants For Growth." It should be noted the publication in which the article appeared was one of those small pesky unprofitable government supported rags distributed to spread propaganda on the local level. These can be easily recognized by the fact you receive them for free as a service to you rather than by subscription and they are filled with ads from quasi-government entities and nonprofit organizations receiving government grants. Another commonality is all the articles within are focused on putting a positive spin on current and planned boondoggles in the area. The fact is when money is plentiful and interest rates low economic growth is fueled by projects that never should of, or would never have been conceived during normal times.

Getting back to the article that claimed we need immigrants for growth, the problem I had with it is that it was based on two myths. The first being economies are held captive to population growth, part of the quantity argument that more is good. More troubling is the second myth which is built around the idea the average immigrant is a plus to the community and country rather than a drain on social services. This is often based on claims they are needed in the work force and have skills that will allow them to rapidly be assimilated into the community. This can be spun into a more people more demand for goods and services scenario or bigger is better way of viewing the economy. I feel we should look deeper and be troubled when this growth is created by money flowing from the government in the way of entitlements, however, immigration policy is a subject for another article.

Money Poorly Spent Becomes A Negative Over Time
The false narrative that simply growing the size of an economy even by using deficit spending undercuts the importance of a solid economic and the long-term stability of the financial system. We must question whether the numbers work in the long run and whether when people retire the money will be available to fund their pensions and fulfill other promises made to them by society. It is dangerous to confuse the notion that getting bigger will balanced budgets and that financial restraint can simply be cast aside. In fact, austerity has been given a bum rap in that it is merely the medicine for out of control spending. The recent trend has been to blame austerity for the pain it causes, however, it doesn't make sense to blame the medicine taken after someone gets sick for the discomfort the illness has caused. In fact, if a government runs its business in a proper austere and responsible manner the issue of cutting or tightening should never surface.

This article is to highlight the fact that not all economic growth is equal. This becomes apparent when we look at a failed project versus a successful one that cost the same to build but pays dividends for many years. Sadly, much of the money being spent in the American economy flows into the area of greasing the wheels of commerce rather than creating real growth. By not properly directing more of our spending into areas that return long-term benefits and maximizing prior investments we are squandering our resources. To make matters worse we have even gone to embracing an attitude of borrowing from future growth by financing current projects by a series of Ponzi schemes that delay paying for them until some future date. This kind of financing has disaster written all over it. When all is said and done this will not end well.

Footnote; Several projects proposed in the city where I live reflect what is happening across much of America. Financial restraint is being cast aside to create the illusion of growth with projects that have little hope of ever becoming profitable. An example of such spending can be found in the article below.

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