Wednesday, October 06, 2010

No carrot left for reducing federal deficit

Carrot and stick is used to motivate. Carrot is positive, stick is negative. Must be lingo from horse and buggy days.

Today, the carrot has been removed as an incentive for curbing our federal debt. Carrot being low interest rates.

Back in the 1980s, we heard if we lowered the debt, there would be more money available for private borrowing, thus lowering interest rates. Well now, interest rates are about as low as they can get in spite of the high deficit. How can they get any lower? The carrot is removed.

The stick remains. The stick is financial panic if the government starts to default on its debt. The stick is theoretical, however. It's only a future scenario that is possible. Something theoretical is less apt to work as a motivator. No wonder we keep adding to the debt.

Closer at hand are the carrots created by spending. Military spending, veterans benefits, education, roads, health care, government spending in our economy and so forth. Also closer at hand is the stick if these things are cut back.

The theoretical stick of government defaulting on debt is farther into the future and not as evident. It's less of a motivator. It's like avoiding global warming as a motivator.

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