Earlier today I was looking through some old records, and I came across a flyer for a symposium in which I participated at Seattle University early in 1990. The flyer announced the symposium topic by asking: โA $3 Trillion National Debt: Does It Matter? What Can We Do About It?โ The topic seemed timely enough, given that the gross federal debt had just passed the $3 trillion mark for the first time and was rising at a brisk pace. Back then, $3 trillion seemed like โreal money,โ so some people were rightly concerned about the consequences of such large and growing public indebtedness.
At the symposium, I spoke before Lowry did, and in my remarks I sought to inform the audience about how public choice analysis sheds light on federal lawmakersโ preference for running up debt, rather than raising enough tax revenue to pay for increases in federal spending. In effect, the members of Congressโand often the president as wellโare essentially irresponsible. They know that the ordinary citizen does not understand that debt financing does not substitute for taxes, but only substitutes future taxes for current taxes. (If lenders believed that the government would not levy enough taxes to repay its debts in the future as they come due, they would be unwilling to purchase the governmentโs bonds today. Of course, it may someday turn out that their confidence in this regard has been misplaced, and the government will in fact default on its obligations, if not outright, then via the creation of inflation that eats away the real value of the nominal sums repaid to lenders.)
As Lowry listened to my remarks, he became rather agitated, and when his turn came to speak, he lashed out angrily at me and others who thought along the same lines about the essential irresponsibility of members of Congress. Having nothing substantive to say by way of refutation, however, he employed huffing and puffing to bulk up his denials of misfeasance and malfeasance and to support his claims in regard to the virtue of the โdedicated public servantโ class to which he had only recently belonged and which he hankered to rejoin at the earliest opportunity.
Now that the gross federal debt has surpassed $18 trillionโsix times the amount that troubled us back in 1990 (or well more than three times the amount after adjustment for the decline in the purchasing power of the dollar)โwe can clearly answer the two questions posed by the symposiumโs organizers: yes, a large and growing federal debt does matter; and no, we (the general public) can do nothing about it. The governmentโs huge annual budget deficits, now lodged at a seemingly irreducible level of at least $400 billion per year for as far as the fiscal eye can see, continue to build up the total debt. The U.S. public is not especially enamored of purchasing so much public debt each year, but as the debt has mounted during the past decade or so foreign purchasers have filled the gap, and more recently the Federal Reserve System has absorbed huge amounts of U.S. bonds into its own portfolioโa financial strategy that is tantamount to the governmentโs left hand putting newly created money into its right hand, which then expends it as if there were no tomorrow.
More and more people have come to understand that this this way of dealing with the federal fisc cannot continue forever and that a day of reckoning must come sooner or later. The ranks of such people do not include, however, the scoundrels in charge at the Treasury, the Fed, and the Congress who are responsible for this utterly irresponsible, yet seemingly unalterable course of action.
Robert Higgs is senior fellow in political economy for the Independent Institute and editor ofย The Independent Review. He is the 2007 recipient of the Gary G.ย Schlarbaumย Prize for Lifetime Achievement in the Cause of Liberty. Original Article appeared: ย http://mises.org/blog/us-government-debt-now-once-unimaginable-level
