by Jeffry R Fisher

Created on: November 21, 2011

Deficit spending is to the economy what cocaine is to the brain. It initially feels good, but it hasn't actually created any new resources. Instead, it has wasted resources that should have been saved.

With cocaine, the resource is dopamine. Re-uptake is inhibited, so one feels dopamine more... until it is lost. Then one needs even more cocaine just to feel normal. The brain "habituates".

As long as the user can get ever larger doses, s/he will be in denial about the inevitable slide toward bottom. S/he may claim that cocaine provides a net benefit. "Bottoming out" is when there's no dopamine left for the cocaine to work on. The user can die.

With deficit spending, the resources are more complex combinations of materials and labor (so they're much harder to study). By going into debt to spread around cash, the government can temporarily cause individuals to feel wealthier than they really are, leading them to consume more. Businesses feel that obsolete capital and frivolous luxury items are more profitable than they really are, tricking them into allocating capital that then depends on continued "easy money" to be profitable. The flurry of economic activity feels good for a time, and it looks good in the statistics, but...

The economy "habituates". The misallocated capital is only profitable as long as the government continues to shower the economy with money. Absent the deficit spending, people would realize that they can't afford certain goods and services at prices that make them profitable. Only real productivity gains can do that, and real productivity gains come from business decisions made in an "honest" (stable) monetary climate.

And then it comes time to pay the debt. The resources and capital and productivity aren't there to give goods and services back to other countries from which they've been "borrowed". Foreign countries aren't buying what we're selling. The only way to service the accumulating debt while continuing the easy money is to increase the deficit dosage.

Like drunkards in denial demanding "hair of the dog" drinks, the deficit addicts in Congress will insist that another, bigger stimulus will "cure" what are really withdrawal symptoms from earlier binging. Politicians will continue self-medicating until they're replaced or until the economy hits bottom.

An economy hitting bottom is an ugly thing. People die, sometimes by the millions. Look what happened to the Wiemar Republic. The currency collapsed, and then a dictator took advantage of the crisis. He borrowed piles of foreign currencies from other countries and then started a war rather than pay it back.

If you think America has an escape hatch that involves stiffing the Chinese and the Arabs, you better be prepared to go to war against (and lose all of imports from) both. What are you going to eat if America's farmers have no imported fuel to plow their fields?

America needs to break its deficit addiction now, before it hits bottom.

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