Higher private debt in the US has also provided small and medium-sized companies with startup capital in the stockmarket to support dynamic growth strategies. For example, initial public offerings (IPOs) have generated US$350.8 billion in funding since 1989. These funds have also allowed more investment spending and expenditures on R&D. Business investment contributed nearly one-third of the economy's growth since 1990, and R&D now accounts for 2.7 percent of GDP, up from 2.4 percent during the mid-1990s.
In the US case, its burden of debt will be paid by private individuals or businesses that chose to incur it and who have used it (mostly) wisely to enhance their productive capacities so they are better able to repay their debts. The composition of Japan's ballooning debt is such that future generations will be saddled with a high tax liability to pay interest and principle for money that was spent and little beneficial effect upon economic growth.
One irony is that lending by the high-saving Japanese is fueling America's borrowing binge. Another is that America's boom and Japan's gloom provides some evidence that rapacious consumers and profit-seeking businesses are better able to provide improved material well-being of citizens than are bureaucrats and politicians.
Christopher Lingle is Global Strategist for eConoLytics.com and author of The Rise and Decline of the Asian Century.
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