During the first decade of the 21st century, the ratio of the developed world’s working age population peaked and now leading nations like Denmark are facing a so-called ‘aging economy’ here. This is also witnessed in China, Japan and the US. Since the early 2000’s, human productivity slowed down and so demographic change and slowed the economy’s growth as well.
In light of this, working adults need to change their mindsets on government debt to boost economic growth. There are two kinds of debt. The first kind is using to invest in long term growth projects and has a social or economic return on investment. The second is when loans are used to subsidize or manipulate market forces to make up for bad policy making. These have short term returns and long term damage.
Professor Ricardo Jorge Caballero teaches economics at the Massachusetts Institute of Technology. In his publications and papers, he has repeatedly cautioned that our financial world is facing severe shortage of safe securities like the US government bonds as the global growth of economy has been creating wealth after wealth.
When used wisely debt can be good. If you are young and buy a house on debt, you will pay most times thirty years to repay the mortgage. After thirty years, what are the facts?
In future dollars, you paid very little for that house and over time paid less for housing as a percentage of your growing income. It was a good investment in yourself that saved you a lot of money you might have spent on ever increasing rent. You went into debt and reaped financial benefits. Or what about education? Once again, you borrowed to pay for school and earned much more money over your lifetime than if you had not gone to school.
Or what about manufacturing equipment? As a company man, you went into to debt to buy machinery that made finished products of greater value than the sum of the constituent materials, energy, and manpower. You made a profit. If you go into debt now, you will make far more money over time if that debt is used wisely.
Perhaps we need wiser people?