Is public debt a blessing or a curse?
Recent developments in our country, including a pending multi-trillion dollar spending package being pushed by the administration, would lead one to believe that if we just spend more, and thus embrace more debt, then the economy will take off: a blessing.
But is it, really? How did our founding fathers view public debt? In Hamilton’s Curse, Tom DiLorenzo addresses the roots of the issue, and the current crisis. In fact, he lets a cat out of the bag in the opening paragraphs of chapter two, when he states: “Goverment debt is every politician’s dream: it gives him the ability to buy votes by spending on government programs (with funds raised through borrowing) that will make him popular now, while putting the lion’s share of the cost on future taxpayers, who must pay off the debt through taxes.” Is this really the system our founding generation sought to bequeath to the American public when they instituted a government to secure the God-given, unalienable rights of life, liberty and the pursuit of happiness?
Take for example the current burden of the federal debt on each and every American, whether their votes have been bought or not, whether aged or just born this very minute: $184,000 per person in 2008 dollars, according to the national debt calculations performed by the Peter G. Peterson Foundation (www.pgpf.org), with a total national debt in the vicinity of $56.4 trillion. What, you say? Just recently you were told that the debt load was a measley $44,000 per person.
Not surprising, really, considering that the “national debt” that most commentators talk about does not include Medicare and Social Security obligations, but instead focuses on just the publicly-held debt (bonds) and money that the government borrows from itself, which is now in the neighborhood of $13 trillion alone. However, our government treats debt like a junkie treats his next fix: absolutely necessary, and the bigger, the better.
Jefferson considered debt to be a curse which “has decimated the earth with blood.” He wanted government debt obligations limited to at most a 19-year term, in order for the accrued debt to be paid off in the same generation in which it was entered. Jefferson had the right idea.
Hamilton saw debt as a blessing, holding the notion that debt gave “energy” to government (hmm, my junkie analogy seems fitting here), and that it was essential for growing the state. As the first Treasury secretary, Hamilton had an opportunity to see his program be adopted and exerted great energy in creating reports to the Congress to persuade them to adopt extensive government debt and taxation.
DiLorenzo explains how in at least two instances Hamilton used his position and policies to benefit himself and political cronies: not unlike what we see today in the politico-financial complex. One scheme saw the Hamilton faction being able to speculate on war bonds at a significant profit (and at significant loss to the veterans who held these obligations which the federal government, unbeknownst to them but fully known to the Treasury secretary and his New York associates, had fully funded to be repaid); another Hamilton scheme was to have the federal government assume each state’s war debts, thus nationalizing that debt and chipping away at state sovereignty.
However, Hamilton’s plans for a permanent debt cycle were generally thwarted, with exceptions of the periods of the War between the States and the Spanish-American war, until the eclipsing of Jeffersonian fiscal restraint by the policies (adopted by the politicians) advanced by John Maynard Keynes and his followers in the first half of the twentieth century.
DiLorenzo explains this legacy, and how this “debt culture” is a curse, not only on the nation, but upon individual enterprise and prosperity. We truly now have “Hamilton’s Voodoo Economics”: read the book and see why.
