Growing through debt?

To expand on last week's post the money for government spending can come by 1 of 3 means:

1. Financed by taxation (i.e. theft)
2. Financed by debt (i.e. theft from future generations)
3. Financed by printing money - inflation (i.e. hidden theft by devaluing the money supply)

Speaking more broadly than just governments, there is no doubt that debt spending by consumers or by the government will benefit those who receive the spending, does anyone really believe that such spending will really benefit the greater economy over the long run?  Can anyone truly believe that if consumers were just willing to spend more by taking on more debt the economy would get back to solid footing?  If only the U.S. government with trillions of dollars in debt that will never be repaid (or at least never repaid with dollars worth anywhere near what they are worth now) would only borrow and spend more money somehow we will all be better off?

As a nation we have a debt problem.  More of the problem will only make things worse not better. 

Ideally we repudiate the debt we will never repay sooner rather than later.  We let banks fail.  We let the unproductive sectors of the economy go under - those sectors of the economy that have been propped up with government intervention.

To be clear this will not be a fun process and many people will suffer as the economy clears the years and years of malinvestment.  However, over the recent past we have first hand experience with the expansion of the monetary system has wrought with the inflation and then bursting of the dot com bubble followed by the real estate bubble.  We have seen how this movie ends, we do not need another bubble to inflate and then burst.  The Austrian business cycle theory teaches us that these types of bubbles are not caused by the free market but rather by government interventions in the market.

So rather than repeat the same mistakes of the past how about we try something completely different?  How about we give a free market a real test?  How about we remove the shackles imposed by governments and see what an unhindered market can do?  Certainly there will be pain as markets clear but the innovation that would be unleashed would generate true prosperity and growth.