patrick.net

I hear many people mentioning that we'll simply have to outgrow our debt. I've been trying to figure out all the scenarios that make this possible. So far, I've got two.

1) Inflation. This devalues the dollar, to the detriment of our savers. This also devalues our debt. I think this scenario is more likely than not.
2) Wealth creation by productive means. This doesn't have to be manufacturing, but it cannot be done by means of rent-seeking or other non-productive ways.

Example of non-productive wealth creation. A small town called Townville can spend up to X dollars on goods of Y quantity. As of now, there are 100 stores in Townville selling the goods to be purchased. Now I come along and build another store to try to sell the same goods. 101 stores vs 100 stores would cause a negligible decrease in price, but I consider this as non-productive because I'm not increasing aggregate wealth. I'm simply trying to get more of a pre-existing amount of money. The size of the pie remains the same. X dollars and Y goods. I'm not sure if this fits the definition of a rent-seeker per se.

Example of productive wealth creation (non-manufacturing). Indieville is home to a few call centers, offering their services to anywhere in the world. As they continue to offer services, they get dollars, euros, pounds, etc. for their services, thereby increasing the aggregate wealth of Indieville.

Correct me if I'm wrong, but productive wealth creation would have to mean a trade surplus. Otherwise, the amount of wealth in a system (the USA) would not increase. Inflation (which is a form of taxation) devalues our debt. And this leads the main question of my post: Without inflation or a trade surplus, how is it possible to outgrow our debt?

For the past so many years, our GDP grew due to a great increase of our debt coupled with some inflation. In terms of debt, I think we may be reaching the end of a one-way street. Or are we going to continue to borrow (just like Japan with 225% debt to GDP)?