Coronavirus has shown us we were living in an economic fairy tale
Jeff Booth is the author of The Price of Tomorrow: Why Deflation Is The Key To An Abundant Future.
You and your neighbour, let’s call him Bob, choose two very different paths. The year is 2001. You choose to live within your means, only paying for what you can in cash and never taking a loan.
He, instead, takes a $1-million loan to fuel lavish spending. He builds a new house, hires gardeners, buys new furniture and a big-screen TV. To you and all of your neighbours, looking in from the outside, Bob is very wealthy.
As a byproduct of his lavish spending, he also spurs job growth to support his purchasing. Factories, construction, real estate agents and transportation companies all benefit. The next year, he cannot support his spending, so he decides to borrow $2-million more, part of it to make interest payments on his initial $1-million, and part of it to keep up with his lifestyle. With that additional money, he ramps up his spending – driving many more new jobs. He also decides to buy an additional home and rents it out to gain new income.