My question was: "The USA has become the wealthiest nation in the history of civilization. Obviously something has been done right. What do you think that is?"
Your answer was: "Freedom the ability to grow without governments interference."
Clearly, your making reference to Adam Smith, the famous eighteenth century economist, who published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776. Although he's credited with "laissez-faire" economics (the principle that the free market, not the government, is the best arbiter for economic progress), many seem to have forgotten his dictum regarding government's role....
Adam Smith said it's a government's duty to provide a nation with five basics: defense, justice, education, infrastructure, and a stable currency. After providing those, he said, it is then that the government should stay out of the free market's way. Adam Smith's economic philosophy is correctly termed, laissez-faire liberalism.
If the government is successfully providing the nation with Adam Smith's imperatives – defense, justice, education, infrastructure, and a stable currency – it is investing successfully in the nation's future. But that begs the question of how we can judge the overall success and failure of our investments....
In my world, which is real concrete and not full of moralistic hype, I can tell you easily how we know we've been making good investments? The bottom line is this: the lenders are already telling us how well we're doing. If I'm a good credit risk, my banker will be glad to lend me money for a new car or house; if I'm not, he won't. If a retailer has a good track record, lenders will demand a relatively low interest rate for their bonds. If my local government has succeeded in growing its tax base, in part by successfully educating its growing population, lenders will be happy to buy municipal bonds that help build new schools. Lenders – those who make the market for debt instruments – are already telling us how well we're doing.
Guess what the lenders think is one of the safest investments on the entire planet? That's right – bonds offered by the Department of the Treasury of the United States of America. Federal debt. Lenders worldwide are glad that the USA wants to borrow some of their money. Why? Because they know with certainty that they'll get their interest payments and their principal back -- in full, and on time.
PS Quantity of Debt in relation to equity, along with the accompanying interest rate and ever changing inflation rate is what matters most. |
