Wednesday, May 25, 2011 by USA Today
by Sally Kohn
by Sally Kohn
The way politicians from both parties are shouting from the rooftops about the dangers of the federal debt, you'd think such high rates of borrowing are always cause for alarm. But some of our nation's largest and most successful businesses not only run even higher levels of debt — they actually consider carrying significant debt to be good business practice. In fact, the private sector teaches us why increasing government debt right now is a good idea.
The United States generates approximately $14.5 trillion in GDP each year and carries, currently, $14.3 trillion in debt. That represents a debt-to-income ratio of roughly 1-to-1.
By comparison, here are the debt-to-income ratios of some of the leading corporations in America:
Sure, if the U.S. were borrowing anywhere near as much as Chase bank, we'd have legitimate reason to worry. But in general, borrowing money is necessary to invest in the future — whether the future of a business or the future of a nation.
Investing in the future
After all, what makes a company like IBM successful isn't just that it makes money each quarter and has high stock values in the short term. IBM is successful in the long term as well because it invests in future business opportunities — borrowing money to develop new areas of practice that ultimately grow the company, earn more profit and pay those loans back.
Similarly, especially now that government revenues are historically low because of tax cuts as well as a sluggish economy, the United States must borrow money to invest in future opportunity for the nation as a whole.
Consider the aftermath of the Great Depression, when the U.S. invested in the federal highway system that not only created jobs in the short term but also literally paved the way for all kinds of business growth and entrepreneurship across America.
Similarly, public investments in education created a generation of small-business owners, Silicon Valley innovators and, yes, Navy SEALs. Industries such as aerospace, computing and biotech would not exist today were it not for our substantial government investments in the past.
Today, our government needs to borrow money to send the next generation of scientists to college, to invest in green technologies that will solve our energy problems in the coming years, and to ready our nation's infrastructure for the next great American invention that will captivate the global market.
Look to Singapore as model
Borrowing today to fund the innovation of tomorrow stimulates our economy and generates revenue growth that pays back the debt. That's why emerging economies such as Singapore — which is still riding high despite the worldwide economic downturn — carry a debt-to-income ratio that looks more like IBM's, borrowing money to keep its economy innovating and growing.
Yes, too much debt can indeed be dangerous, especially debt that is not directed at growing future opportunity and ultimately paying down that debt. But in the midst of a stagnant economy, with the private sector sitting on record amounts of unspent capital and failing to create jobs, government is the spender of last resort — the only way to jump-start the economic engine of our future.
Often, those who oppose federal government spending compare the federal budget to the family budget. Even President Obama has said, "Families are tightening their belts. Their government should, too." Indeed, when families run up credit card debt, though often understandable or even unavoidable, that kind of debt is seen as irresponsible. Think of buying a home. Yet most families grow through strategic debt, including assuming decades-long mortgages. Is such a move irresponsible, or simply a strategic investment in a family's future?
Critics of government often say public institutions should be run more like efficient, profit-driven businesses. In that case, it's time to end the ideological attacks on our federal debt and let our government borrow the same way America's best businesses do. The dividends will come back to all Americans — not just in dollars but also in better schools, better health care and retirement, new roads, safer streets and greater prosperity for all.
In the meantime, the only interest we should worry about is our national interest.
The United States generates approximately $14.5 trillion in GDP each year and carries, currently, $14.3 trillion in debt. That represents a debt-to-income ratio of roughly 1-to-1.
By comparison, here are the debt-to-income ratios of some of the leading corporations in America:
In other words, IBM borrows twice as much money as it earns annually. Boeing borrows four times more than it earns. And JP Morgan Chase, clearly not too big to borrow, borrows 50 times more than it earns — getting $50 from lenders for every $1 it makes.
- IBM — 2-1
- Dupont — 3-1
- United Technologies — 3-1
- Boeing — 4-1
- Caterpillar — 14-1
- JP Morgan Chase — 50-1
Sure, if the U.S. were borrowing anywhere near as much as Chase bank, we'd have legitimate reason to worry. But in general, borrowing money is necessary to invest in the future — whether the future of a business or the future of a nation.
Investing in the future
After all, what makes a company like IBM successful isn't just that it makes money each quarter and has high stock values in the short term. IBM is successful in the long term as well because it invests in future business opportunities — borrowing money to develop new areas of practice that ultimately grow the company, earn more profit and pay those loans back.
Similarly, especially now that government revenues are historically low because of tax cuts as well as a sluggish economy, the United States must borrow money to invest in future opportunity for the nation as a whole.
Consider the aftermath of the Great Depression, when the U.S. invested in the federal highway system that not only created jobs in the short term but also literally paved the way for all kinds of business growth and entrepreneurship across America.
Similarly, public investments in education created a generation of small-business owners, Silicon Valley innovators and, yes, Navy SEALs. Industries such as aerospace, computing and biotech would not exist today were it not for our substantial government investments in the past.
Today, our government needs to borrow money to send the next generation of scientists to college, to invest in green technologies that will solve our energy problems in the coming years, and to ready our nation's infrastructure for the next great American invention that will captivate the global market.
Look to Singapore as model
Borrowing today to fund the innovation of tomorrow stimulates our economy and generates revenue growth that pays back the debt. That's why emerging economies such as Singapore — which is still riding high despite the worldwide economic downturn — carry a debt-to-income ratio that looks more like IBM's, borrowing money to keep its economy innovating and growing.
Yes, too much debt can indeed be dangerous, especially debt that is not directed at growing future opportunity and ultimately paying down that debt. But in the midst of a stagnant economy, with the private sector sitting on record amounts of unspent capital and failing to create jobs, government is the spender of last resort — the only way to jump-start the economic engine of our future.
Often, those who oppose federal government spending compare the federal budget to the family budget. Even President Obama has said, "Families are tightening their belts. Their government should, too." Indeed, when families run up credit card debt, though often understandable or even unavoidable, that kind of debt is seen as irresponsible. Think of buying a home. Yet most families grow through strategic debt, including assuming decades-long mortgages. Is such a move irresponsible, or simply a strategic investment in a family's future?
Critics of government often say public institutions should be run more like efficient, profit-driven businesses. In that case, it's time to end the ideological attacks on our federal debt and let our government borrow the same way America's best businesses do. The dividends will come back to all Americans — not just in dollars but also in better schools, better health care and retirement, new roads, safer streets and greater prosperity for all.
In the meantime, the only interest we should worry about is our national interest.
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