Raise the Hammer

What if the "truths" we have been told about the economy are all wrong.

For example, we have been told that things like LRT, stadiums, higher welfare payments are very expensive and therefore have to be heavily scrutinized before they are funded.

However, is that really the case?

Since 1992, Japan's debt/GDP has gone from 70% of GDP to the current 220%.

In the same period of time, Japanese real estate prices have fallen dramatically....

http://www.reinet.or.jp/pdf/report/shigaiti201106/zenkoku.pdf

(Not only that, but Japan has also enjoyed(suffered?) through some of the lowest overall inflation of any country in the world.)

So while Japan ran big government deficits, one of the major side effects was that real estate got cheaper to buy.

This same thing has happened in Canada (and is currently the case in the U.S.). When deficits are big, home prices either stopped increasing at a fast rate, or they declined/flattened out (1981-86, 1990-95). In contrast, when we run surpluses, or small deficits, home prices increase at a faster rate (1986-89, 1997-2009).

But wait, aren't falling home prices a BAD thing?

I don't know, are falling car prices a bad thing? How about falling food prices, clothes prices, or education prices?

Imagine if house prices fell so much that a person could buy a 3 bedroom house for $20K, from the current $200K. Would that be good for society, or bad?

Think about it for a second. Why is it that home prices are so expensive that we have to work the rest of our lives paying them off? The average house takes around 40 days to build, the land is plentiful, and yet we have people living on the streets because the COST is far to much for them to ever be able to purchase their own home.

Another reason why we think government deficits/debt are bad is because we have been told that government spending needs to be BORROWED.

In fact, the Government of Canada, as the sole issuer of Canadian dollars, can spend ANY amount of money it wants to.

For example, if the Government of Canada wanted to give Hamilton $1 billion to spend on transit, all it would have to do is deposit that money (essentially using keystrokes) into the city bank account. As an after thought, it would then sell bonds in an equal amount to the market, so as to have a mechanism to pull reserves out of the banking system and thus help control inflation.

Alternatively, the City of Hamilton could raise the $1 billion locally (tax high earners) and then get the Feds to issue tax credits to offset that exact amount. In this way, the city would get the $1 billion, federal spending would not be inflationary, and local residents, who were taxed by the city, would save the equivalent in federal taxes. All that would change, would be the debt of the Government of Canada. But since we know it can NEVER run out of money, who cares?

To sum up...

If we have a pretty good set of data points that show that housing prices fall when we run government deficits AND we know that lower home prices are good for society (less homeless people) AND we know the government can never run out of borrowing capacity, then what is the reason to NOT spend on things like LRT?