If we could just spend more on interest, we could really stimulate GDP growth

This may not sound right, but give me a second and I’ll show you that this statement is true.

The economy, as defined by most politicians and economists, is a mathematical model called Gross Domestic Product or GDP. This model is based on consumption (spending by consumers, businesses and the government.) rather than wealth building or production. So every dollar spent is a dollar of GDP and every new dollar spent is GDP growth.

Now, if you are in Congress or the President, you could catch on to this real fast. The more you spend, the more GDP goes up and the better your chances for reelection. But it gets even better.

But, we have one speed bump to get over first. To spend a dollar you have to produce a dollar. But the government doesn’t produce anything so it has no money to spend. No problem, it just has to get its dollars from somewhere else.

The government has to take a dollar from producers in order to spend a dollar; or it has to borrow the money with interest from someone else. It doesn’t matter where the dollar came from in the GDP model because every additional dollar the government spends is counted as an increase in economic growth (GDP.)

Now, if the government takes a dollar in taxes from a producer to spend. You could argue that the net is the same; you subtract a dollar from the economy in taxes and then spend that dollar. This could hurt down the road when you have to increase taxes to pay for the dollars you are spending now; but who cares. Many think they will be out of office by then.

You would think tax payers would catch on to this, but remember you elected them because they were clever and great communicators. So they just change the meaning of the word spending to investment and everyone is happy. Long-term you try to convince tax payers that you are only doing this because the government can spend dollars more wisely than the producer or because the government can buy something the producer cannot.

Wait. I’m not done. Here is the BINGO. You borrow lots of the money because if you pay-as-you-go, tax payers could catch on. And you get to pay huge interest payments on the borrowed money—you got it. Every new dollar paid is an increase in GDP.

Now, think of the GDP growth we are going to get when our deficits go up by 10 trillion or more over the next few years. PLUS, if interest rates rise significantly because of all the debt, BINGO –even more GDP growth.

If you think this is a sane approach to our economy, do nothing. If not, support politicians who are sane.