Friday, November 5, 2010

Public Debt Accounting

We are bombarded with media stories pointing out the calamity of a large public debt. We may not be able to grasp trillions of dollars, but we know it is ominous. Political analysts suspect that many voters in the recent election regard the public debt as immoral, and now we must pay for our sins with austerity and reductions in public services, excepting the military, of course. The fear and loathing attached to public debt is a product of poor accounting that treats all public spending as consumption. However, much public spending is a long-term investment in human capital that enhances our productivity.
When a business invests in new plant and equipment, it carries it on its books as an asset. This puts its debt into a proper perspective. The Federal government should keep its accounts the same way. This would help the public avoid misguided efforts to reduce public spending on education, health care, and scientific research.
I owe this insight to William Krehm-- (>

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