If you think education is expensive, try ignorance.
Today Governor Christie (NJ) launched his Presidential campaign with a blistering attack on “entitlements,” promising that he will slash them down to size if elected. All such programs were a drain on the national budget, he asserted, and the cause of the rising national debt. Only by massive cuts in programs such as Medicare, Social Security and aid to dependent children can economic growth be raised to 4 percent or more per year. He thus demonstrated in one breath that he does not understand debt, where it comes from, how the economy works, or how it can be improved. He did demonstrate that he is utterly unqualified to hold the position that he seeks.
Even a third grader understands something about opportunity costs. It’s what you give up when you spend money for something else. If you spend your last dollar on ice cream, you look rather silly to then complain that you do not have the price of a glass of lemonade. Unless you are just a whiner.
The Iraq and Afghanistan wars together will cost $4 to $6 trillion, according a 2013 study from Harvard University's Kennedy School. Now that most of the lies about those wars are known, thoughtful Americans and others around the world believe these wars were not justified, and we never should have spent money or lives on them. The opportunity cost of those wars can now be put in perspective by showing what we could have done with the $5 trillion in average costs that the government has borrowed and that you and I must repay in taxes.
If we had inserted $5 trillion into the economy during the past 10 years, those dollars would have created about $40 trillion in GDP. That is because the average turnover rate of money in circulation has been 8, or each dollar would have been spent 8 times per year. That additional output would have generated $34 trillion in additional personal incomes, $16 trillion in new tax revenues at all levels of government, $6.6 trillion in new revenues to the federal government, and 3.4 million new jobs. The tax revenues alone would have paid for all college expenses for all students in the nation while cutting the public debt by 50 percent. There would also have been money for new infrastructure (bridges, railroads, airports), and big increases in R&D for renewable energy and medicine.
Conversely, if we were to follow Christie’s vision to cuts in entitlements, first of all those affected would be harmed by lower incomes, less health care, and children from poorer families would have to do without needed basic care. In addition, the economy would shrink, while personal incomes, employment, and new tax revenues would fall because of a loss in government spending. The losses would not be as severe as the gains from adding new money because money left untaxed in circulation has a slight stimulative effect, but that is more than offset by the spending losses from the government.
If Christie or any other candidate were able to carry out such cuts, they would have effectively transferred the cost of two avoidable wars plus interest onto the backs of our neediest children and our senior citizens. I am reminded of the wisdom in a bumper sticker from a few years ago:
“If you think education is expensive, try ignorance.”