The deal of the century!

A column ran in today's Washington Post that highlights a common fallacy that is rooted in a lack of understanding of basic economics. The writers of the article try to argue that although we are broke and don't have the money to pay for it, we can't afford not to have Obama's version of health care reform. After all, $1 Trillion spread over a ten year period is only $100 Billion/year:

"Our economic well-being is generally determined by the amount of goods and services that we consume; transfers of money between us have no impact on that total. (Trade with the rest of the world is relatively insignificant when it comes to health care.) So the relevant question is whether our economy should be producing $100 billion more of health insurance each year so that virtually everyone in the country can be covered. The trade-off is either consuming less of other goods and services or investing less in future growth."

Consumption is not a good indicator of economic health. I can get a mortgage for an extravagant house, get a loan for a luxury car, take out a home equity loan on my new house to go on a Caribbean vacation, max out my credit cards to buy plasma televisions and some trendy new furniture, and in the process bury myself under a mountain of debt. Sure, I may have a lot of fancy new things and on the surface appear to be quite well off; the real problems start when the bills come due and I have no way of paying for them. This type of thinking is precisely why we find ourselves in the midst of the worst economic downturn since the Great Depression.

We cannot spend our way to prosperity, no matter what the people in D.C. would have you believe. The cold hard truth probably won't win too many elections, but in times like these it may be the only thing that can save our republic. Why is China's economy so healthy? The answer is actually quite simple. They are producing goods that other countries want to buy. This is how wealth is created, and although it pains me to say it, we could learn a thing or two from the Chinese.

Here's the link to the article, in case you're interested:
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/01/AR2009090101027.html

A word of caution: It goes from bad to worse in a hurry.