I think borrowing from the future is sustainable if you are building something that gives back more than the cost of what you have borrowed. So the industrial revolution, for example, used capital to create new ways to produce things (machinery) using less resources than traditional methods (manual labour).
I was told that around 1994-1996 was the only significant change in productivity improvement since the industrial revolution. Most put this down to the internet rapidly reducing the amount of effort it took to find out information to increase productivity. [NB. there may have been another change in the rate of productivity improvements quite recently, but it is too soon to say. If so, it may be that Web2.0 is accelerating the rate at which we can collaborate productively].
If however we borrow to buy consumables, disposables or even housing (especially bigger houses to house fewer people), then we undermine our future, or if not ours then our children’s future. Personally I curse the greedy baby boomers for their ridiculous affluence and botoxed appearances, and in doing so wholehearted agree with Michael’s blog.
Now how do we get my wife to stop wanting what all the other deluded women in the world seem to have (seem because it is funded by debt and actually doesn’t belong to them), and save money? Men are just as bad with their BMW’s but peer pressure seems to be so much stronger with the female gender … how many shopping centres would go out of business if we go rid of all the non-essential girly crap? I suppose it all comes back to the definition of non-essential, but for me descretionary expenditure should only be spent on things that increase productivity because “in the long run productivity is everything” (Paul Krugman 1992, The Age of Diminished Expectations: US Economic Policy in the 1980s, MIT Press, Cambridge, p. 9.)
So true. Borrow for the good of our children and our children’s children rather than for our own instant satisfaction where we leave behind nothing but an IOU. And yes I do agree with Krugman about productivity but I also think economists focus almost exclusively on labour productivity (which helps) rather than capital productivity (which in the final analysis is what counts). I may be twice as good as making widgets as you but if I am four times more expensive, you are in fact twice as productive – in terms of employed capital – as I am. This dirty little secret is rarely acknowledged but it goes a long way to explaining how and why the Chinese worker ultimately undercut many workers in the West.
By: michaeldavidpower on September 23, 2010 at 12:03 pm