Unfortunately, western governments do the complete opposite of that suggested on the previous page. Through various forms of economic and monetary policies, they encourage people to spend everything they earn and a little more besides. And the obvious result is that people keep next to no savings and rack up massive debt, thereby completely destroying personal financial resilience. In short, western governments totally ascribe to the ridiculous notion that the economy will keep on growing exponentially until the end of time so that salaries and home prices can forever go higher and higher.
There are three primary reasons they do this despite the fundamental truth that an entity growing exponentially within a finite system (such as planet Earth) must fail spectacularly (illustrated below). First is the moral hazard that politicians get elected by making more expensive promises year after year in the form of more government spending and welfare benefits. Secondly, we have to acknowledge the massive corporate influence in government. Corporations make billions out of people buying all sorts of stuff they have absolutely no use for. And thirdly, there is this massive misconception that more consumer spending is the only mechanism for creating more jobs (we will discuss this in greater detail later on).
Now despite the fact that these three reasons can respectively be described as immoral, unethical and just plain stupid, they are the rule of the land at present and are enacted in various ways. The primary vehicles through which consumer spending is encouraged is monetary policy: primarily inflation and interest rates. Let’s take a look at these two evils.
Inflation – that fiat currency illusion where things seem to get more expensive every year – serves two important functions: it gets people to buy now because they know that the price will only go up in the future and it gets people to borrow because inflation reduces the real value of a loan over time. In reality, inflation is not goods becoming more expensive, it is merely the money we use to buy goods that loses more and more of its value every year. If anything, goods should become less expensive with time as we learn to produce them more efficiently, but we end up always having to pay more and more of our rapidly devaluating money for these goods.
What this currency devaluation effectively does is to transfer value from savers to borrowers. A person holding savings sees the real value of his savings diminish over time, thereby essentially reducing his purchasing power and making him poorer. The person holding debt, on the other hand, sees the value of his debt reduce over time, thereby essentially making him richer. In this way, people are punished for saving and rewarded for borrowing.
The way in which this idiocy can be corrected to some degree is through interest rates. If interest rates are at least higher than inflation, people holding savings still see a small increase in their purchasing power with time and people holding loans also see an increase in their debt, thereby restoring sanity. However, if government wants to “stimulate” the economy through increased consumer spending, they simply get the central bank to lower interest rates. This strategy has now gotten so out of hand that many western central banks now give out money at virtually 0% interest, implying that, thanks to inflation, institutions borrowing this money are essentially being paid to do so. Naturally this causes people to go completely crazy on debt and this is also how the entire global economic fiasco we are facing today started in 2008 with the US housing bubble.
Another important way in which governments encourage borrowing is through tax breaks on loan interest. Such tax breaks are essentially equivalent to a cut in interest rates and makes borrowing large sums of money much more attractive. When all of these factors; inflation, low interest rates and interest tax breaks, are combined it should really come as no surprise that people borrow and spend way beyond their means, thereby jeopardizing their own future, the futures of their children and the future of their countrymen. And yes, since people are totally naive regarding the ill effects of these fundamentally unsustainable policies (even now that the global financial crisis offers living proof of the failure of these systems), they will simply continue mindlessly chasing this carrot that government dangles in front of their noses, perpetually pursuing that impossible pipe dream that defines modern western civilization: happiness-through-consumption.