Long Term vs Short Term Economic Output
It is relatively easy to increase economic output in the short-term; borrow and spend more. Borrowing $100,000 and purchasing a productivity improving excavator or a leisure enhancing RV causes GDP to increase by that amount in the short-term. Over the short-term demand for excavators and RV’s increases with purchases, businesses employ more people to meet increases in demand, and unemployment decreases. The long-term impact of buying RV's and excavators is different. Debt payments cause the purchase of goods and services, demand, and employment to decline. Income increases with productivity and productive capacity, and the increased income can more than offset the adverse effect of debt payments. Debt-driven economic expansion that exceeds the rate of population and productivity growth is not sustainable over the long-term.