The law of diminishing marginal returns is a theory in economics that predicts that after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output.
Economists call this a “law”, but it’s really just common sense. Too much of anything can be (will be) a bad thing.
Raise taxes too high and there are no discretionary dollars of spending left over to fuel the economy. Cut taxes too low and there are no funds to maintain basic government services.
Taking some vitamin C is good for us. But keep increasing the dosage and you soon reach a toxic level, where it literally does more harm than good.
Now, in a time of economic crisis, we look around the global economy at a collection of economically bankrupt nations governed by intellectually bankrupt politicians (and central bankers).
They have only one play in their fiscal playbook: more debt. And that play no longer works – at all.
Cheap debt is supposed to fuel economic growth. Just look at urban real estate markets.
A decade of ultra-cheap debt has fueled ultra-extreme urban real estate bubbles around the world. But it hasn’t made our economies stronger or healthier.
A small percentage of people have gotten richer. The vast majority is relatively poorer. Bubble real estate prices are causing more people to sink even deeper into debt.
No overall societal or economic benefit. Pseudo-prosperity, courtesy of the Keynesian witch doctors.
And it is ending.
Debt costs are as cheap as they can go unless one envisions (permanent) “negative interest rates”: a world where all lenders pay all debtors for the ‘privilege’ of loaning them money. Who will lend? Yet with debt already at a near-zero cost, it is providing near-zero economic stimulus.
Meanwhile the overall debt loads keep growing.
A larger percentage of every dollar of new revenue (or new debt) goes into debt servicing. Less and less is left over as productive capital. And that capital is generating ever-diminishing returns.
It is a recipe for utter failure.
These debt-based economies and our debt-based economic system are like broken toys. You can put in “fresh batteries” (i.e. print up trillions of units of new fiat currency), but the toy still isn’t going to run.
Nothing but a complete reset of the global economy can replace all of these broken toys with functional, solvent and sustainable economies.
Debt Jubilee to make economies, businesses and individuals solvent and sustainable
This reset will be extremely painful and unpleasant – like any major surgery that is postponed as long as possible.
Meanwhile, debt-addicted governments continue drowning themselves (and us) in more debt. Inflation-addicted central banks continue drowning everyone/everything in oceans of new fiat currency confetti. This is despite the utter futility of these economic policies.