Borrow and spend

French Finance Minister Christine Lagarde (L) ...

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Borrow until you are bankrupt. That’s a policy that individuals can adopt, but nations cannot. There is the International Monetary Fund (IMF) that acts like a global enforcement agency, compelling spendthrift nations to tighten their belts to receive loans. The IMF enforces the Washington Consensus that free markets and global trade are good. Not everyone agrees with the Washington Consensus, but as it is the policy of the world’s only superpower, smaller nations have few other options. It’s similar to the influence that individuals have within the US to influence our economic policy. When times are tough, it is the little guy who must tighten his/her belt the most. This is true within the US and also abroad thanks to the enforcement efforts of the IMF. Eventually, the IMF will attempt to direct US internal economic policy, but that time has not yet come. Rather the GOP has adopted the policies of the IMF and is now acting as its surrogate.

As I see it, our best chance of avoiding the attention of the IMF and the GOP is to grow our economy to reduce the deficit while putting people back to work in jobs that pay a living wage. We should enact higher taxes on unearned income and at least temporarily act to reduce imports from China and elsewhere through tariff and quota mechanisms. This is the route we took when we were a fledgling industrial nation, and it is the way all successful industrial nations currently structure their economies. The US is viewed by the world as the world’s ultimate consumer, a dumping ground for the world’s over-production of goods and services. US consumers no longer have the purchasing power to be the world’s consumers of last resort.