15 April 2009

Cognitive Dissonance?

First to the cognitive dissonance half of this post: at his address on the economy at Georgetown University yesterday, President Obama said, "We must build our house upon a rock ...We must lay a new foundation for growth and prosperity — a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad. ... And most of all, I want every American to know that each action we take and each policy we pursue is driven by a larger vision of America’s future — a future where sustained economic growth creates good jobs and rising incomes; a future where prosperity is fueled not by excessive debt, reckless speculation and fleeing profit but is instead built by skilled, productive workers; by sound investments that will spread opportunity at home and allow this nation to lead the world in the technologies, innovations and discoveries that will shape the 21st century. That is the America I see. That is the future I know we can have. ..." The President also said, "All of these actions — the Recovery Act, the bank capitalization program, the housing plan, the strengthening of the nonbank credit market, the auto plan and our work at the G-20 — have been necessary pieces of the recovery puzzle. They have been designed to increase aggregate demand, get credit flowing again to families and businesses and help them ride out the storm."

Here's the cognitive dissonance: how can we move to a society of savings while simultaneously bulking of lending and credit? Debt is debt, even if it's easily repaid, and it's still there. I've written about this issue a number of times, and I'm still not sure of the correct answer. However, I do know that we can not simultaneously increase debt and reduce it. The massive increases in government spending over the previous two months (combined with the proposed increases in the budget) only make this idea more dissonant.

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