https://www.cnn.com/2024/07/02/economy/global-debt-crisis/index.html
In: Economics
Sure, people can owe to each other, and the government can owe to its people or other governments, but I like to think of it this way:
Suppose you’re the only person on a desert island, and you survive on a steady supply of coconuts from the one coconut tree. When you arrived there, there’s already a pile of 100 coconuts laying on the ground.
Say, your body survives on one coconut a day on average, but once in a while you have to eat two or three because you ran around the island, and on other days you don’t have to eat at all. On the over-consumption days, you’re essentially owing coconuts to your future self. Someday, you’ll have to eat no coconuts to replenish that pile of coconuts.
Our economy works like this: by eating more coconuts today, we believe we can work harder to plant and raise a second coconuts tree, which will produce several more coconuts a day. By then, we can pay our past debt to ourselves and more than cover our daily coconuts needs. So you start eating more coconuts from the pile of 100.
When the pile goes down to about 20, you’ve worked enough that the second tree has matured, and you’re in good shape. Perhaps now you’ll eat even more coconuts a day to raise a third tree? But there’s always a risk. What if the second coconut tree doesn’t grow up like you thought? What if the first tree gets blown over one day?
Our world is always living beyond its means, investing in a future that is more prosperous and productive than today. That’s the 91 trillion we owe to our future selves. World leaders have to reckon with the question: are we really able to raise that second coconut tree to replenish the pile we’re eating from today? One day, we’ll run out of space on this little desert island to raise trees, and that old pile will run out. How do we prepare for such a future?
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