Wednesday, April 25, 2012

Spending down the capital that its forerunners accumulated

From Is Europe Melting? by Walter Russell Mead. He articulates the common core issue in North America, Europe, Japan and even China.
But it is hard to avoid the impression that, despite the considerable assets the continent still has, this European generation is living off — and spending down — the capital that its forerunners accumulated. And at some point one begins to wonder just how much is left in in the family trust.
When you are spending more than you produce, as almost everyone currently is, that is sustainable only to the extent that that excess spending is creating the capacity for increased future productivity. If excess spending has no positive impact on future productivity, which is definitely the current case for Europe and Japan, and quite probably for North America and China, then the mathematics of the equation will come down like a hammer with no good outcome for anyone.

The only way out is to reduce the spending so that it falls in to line with what is being produced or to change where the money is being spent so that it does in fact increase future productivity. There is pain to be experienced by either route but only one route is pain that leads to gain. In either case, powerful or vocal oxes will be gored.

No comments:

Post a Comment