Why Does Goldman Sachs Fund An Economics Department?
Perpetually impoverished Peru has an annual government budget that’s a microscopic fraction of the U.S.’s. What’s spent annually by the South American country’s political class amounts to a tiny rounding error for Congress.
It all raises an obvious question: why – since Peru’s economy is frequently in such desperate shape – don’t its politicians roll out massive, trillion-dollar plus spending bills? The answer to this question is so obvious that it’s a waste of words to type out, but here we go anyway: Peru’s politicians have exponentially less money to spend (and borrow) precisely because its people produce exponentially less. With production a tiny fraction of total U.S. output, government revenues into Peru’s treasury are small. So, by extension, is its ability to borrow very limited. Only countries that that take in a lot of revenues (and that are expected to take in quite a bit more in the future) are able to borrow in size. Markets work.
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