How to Solve the Debt Problem

Twenty years ago last month, Murray Rothbard published an article in Chronicle about the national debt. At the time it was a paltry three and a half trillion dollars, but in the past two decades it has swelled to 16.5 Trillion. The vast debt is a bipartisan affair, with both sides sharing blame and neither accepting responsibility. What to do about it is a question that hardly anyone wants to think about, let alone actually put forth a sensible solution. Liberals can’t imagine life without a welfare state and Conservatives will give not a penny to reduce warfare spending, thus an impasse exists among the two dominant political groups.

The concept of private debt is a rather simple one, as Rothbard covers in the first section. Mr. Smith borrows $100 from Mr. Jones and agrees to pay the entire amount back over a given term with an agreed upon amount of interest. If the term is for one year and the interest is 5% then Mr. Jones should receive $105 within a year’s time. Everyone wins, for Mr. Smith was able to satisfy his present consumption and delay his payment, while Mr. Jones earned a future profit, according to his time preference.

Obviously some risk is assumed by both parties, namely that a borrower will assume too much debt, become insolvent, and then have to sell off assets to repay debtors; the risk to the lender is of course that his borrower will become unable or refuse to make payments, leaving him with a loss. This happened from time to time and over the course of history governments began writing bankruptcy laws that favored borrowers, allowing them to be pardoned of past debts with little or no compensation given to the lenders.

This encroachment on contracts between the parties is a grave injustice and leads to a host of troubles, namely the moral hazard of deadbeat borrowers taking advantage of the laws to bilk creditors. There are many who reply, essentially, that markets are resilient, and such interventions will be problematic at first, but eventually absorbed by the economy and solutions will be found. Rothbard’s response is “who cares?” This is hardly a moral argument, much less a practical justification for allowing debtors to loot the lenders.

So in the case of private debt, repudiating it is a breach of contract and amounts to a tort against the lender, is it the same with government borrowing? Rothbard argues that it is not, and that there is a fundamental difference between the two forms of debt.

Rothbard explains the difference thusly: “If I borrow money from a mortgage bank, I have made a contract to transfer my money to a creditor at a future date; in a deep sense, he is the true owner of the money at that point, and if I don’t pay I am robbing him of his just property.” The key to all of this is that he promised his own future earnings. “But when government borrows money, it does not pledge its own money; its own resources are not liable.” Because of this fact, the only way for the debt to be paid is either by raising taxes or printing more dollars. And since we’ve reached a point where the debt is so grotesquely enormous, either option would destroy the economy. Therefore, the only viable option at this point is to repudiate the debt.

And now, before moving on, let me first note that “we” never borrowed the money; “they” did, and let’s conflate those two pronouns. Doing so only obfuscates the issue.

Repudiating debt is not without precedent in America’s history. The first time this happened on a large scale was in the 1840s, following a spending binge lead by the Whig party on what we would describe today as “pork.” Rothbard points to the figures from that era, showing that over the course of a decade, state-held debt went from $26 Million to $170 Million, a 1500 percent increase. This again happened in the South following “reconstruction.” The Republicans (spawned from the Whig Party) attempted the same sort of government stimulus to rebuild the devastated South and accomplished mainly to run up unsustainable government debt.

One common objection is that no one in his right mind would make loans to a government that defaulted on its debts. But this is one of the chief benefits of repudiating it; not only may we rid ourselves of the wealth destroying debt, and actually be able to save and invest our own money, but in a way, be inoculated against future advances the State may try to take out on our future output.

Another argument raised against repudiation is that Grandma, with her life’s savings in government bonds, would be harmed if the government reneges on those instruments. The response ought to be: what are the alternatives? Taxing grandma, or debasing her currency, will also be harmful, on net. This is true not only for that holding government debt, but for anyone who pays taxes or deals in dollars.

Finally, some foreign governments hold large amounts of U.S. government debt and defaulting would sour those relationships. This much is true, and this no doubt would have been a much smaller issue to deal with if Rothbard’s advice had been followed twenty years ago. But so long as a fair settlement can be reached, this should deter no one. The overall lesson for all involved is not to do business with governments, plain and simple.

One of the principle ways for a debt-ridden individual to solve his problem is by selling his assets, and governments hold significant assets. Literally, everything must go. The streets and roads, buildings, vehicles, aircraft, the millions of acres of Western land, the parks, and everything else should be sold off and the proceeds used to pay outstanding creditors. This of course won’t take care of the full debt, but selling assets and repudiating the approximate $4 Trillion held by the Fed would go a long way to lifting the burden now dragging us all down. For a simple solution with a lighthearted twist, one that would certainly rid us of Leviathan, see Lew Rockwell’s 30 Day Plan.

Pietism and Liturgy

Lysander Spooner was a great 19th Century individualist anarchist who wrote such works as No Treason: The Constitution of No Authority, among others, and the subject of Murray Rothbard’s essay, “Lysander Spooner: Libertarian Pietist.” He was the last of his generation to hold onto his principled belief in moral rights, or natural rights, not subject to utilitarian or arbitrary interpretation.

Some argue that there are no objective morals, that there is no right or wrong, it’s all subjective and arbitrary. Adam Kokesh made this point when he spoke a few weeks ago at the Show-Me Freedom Fest in Kansas City, Missouri. His point was, essentially, that rights are subjective, based on the preferences of the individual. But, as Rothbard explains, Spooner disagreed, and one of his reasons for dissenting was that the alternative to a belief in natural rights leads to a situation where “might makes right.” With the State being the most powerful, all individuals would be subject to its ultimate authority and be without any defense against its brute force.

Rothbard was inspired to write this short piece by the discovery of a wonderful essay by Spooner, “Vices are not Crimes.” In it, Spooner makes clear the difference between a vice, something which may cause harm to the individual, and a crime, an action that does cause harm to someone else or his property. The distinction – which is vitally important – has been murky at best, for too many too long. He argues that the law, “the engine of socially legitimized violence,” should only be applied to crimes and, for reasons of justice and morality, vices should not be criminalized.

This understanding of rights and morality contrasts sharply with other moral theories, both then and now, which seek to employ the State to correct some perceived moral flaw in the individual. We have seen this argument applied to such issues as prohibition (both alcohol a century ago, and other drugs today), marriage, environmental issues, dieting and nutritional preferences, among so many others. While none of these particular issues should concern the “law,” each has been enveloped into the legal code and there is hardly any vice not subject to near total regulation by the full spectrum of government agencies.

Rothbard provides insight into where some of these theories come from by referring to research conducted by Paul Kleppner, who found with “almost remarkable precision” that one’s political and economic views are shaped by his religious beliefs. For the pietist, one must have a personal relationship with God and a man’s actions reflect this personal connection. The liturgical believer is more inclined to believe in church dogma and that following the doctrinal guidelines of the church will lead to salvation.

Counter intuitively, the pietist was much more inclined to invite the State into civil society, despite the more individualist approach they took to religious beliefs. He wanted the government to intervene to ensure that individual behavior (at least what was considered sinful behavior) was controlled. This was because there was no other way to gauge one’s salvation than by his actions.

But the liturgical follower cared little for the government’s involvement. This too seems backwards in light of the more rigid approach to salvation, but it reflected his desire to be left alone to live his life, and let the ministers and priests deal with issues of morality.

During this period in history when Spooner was active there were three main issues that drew national attention, they were prohibition, Sunday blue laws, and compulsory schooling. In large part the Democrats at the time linked economic intervention to “paternalistic” issues and saw no room for the government to be involved in the economy. Democrats tended in large part to be liturgical believers. The Republicans on the other hand were very much inclined to use the government to enforce both morality and economic policies. They were in favor of big government, as Thomas DiLorenzo points out in many of his books. It should be no surprise that Republicans were, more often than not, pietists.

The one major area where these views diverged was over the issue of slavery. Rothbard notes that by and large the Democrats aligned themselves with the libertarian position on most issues, but took a wholly anti-liberty stance on slavery. The Republicans generally took the opposite view, and advocated abolition. (The motives of the Republicans weren’t always so noble, however, since many opposed slavery for the reason of not wanting to compete with “free” labor, rather than an objection on purely moral grounds).

Prior to the time of the War Between the States Spooner was a “Garrisonian abolitionist,” bent on ending slavery through what Rothbard describes as “a combination of moral fervor and slave rebellion.” Spooner later dissented from the Garrisonians when their position changed and they “forgot their anarchistic principles in their enthusiasm for militarism, mass murder, and centralized statism.” Rothbard explains that to Spooner, “it would be compounding crime and error to try to use government to right the wrongs committed by another government.”

And so it is with all government “solutions.” Each one is an attempt to correct a previous government action, and each one merely compounds the problem. The Affordable Care Act is simply one “solution” in a long line of fixes meant to rectify previous government errors. The health and nutrition laws being contemplated and passed all over the place are in many ways attempts at correcting health problems spawned by the government’s manipulation of the food industry. Environmental regulations often come about in an attempt to limit pollution that could have been prevented, had the government more rigidly enforced property rights in the past.

America’s Great Leap Forward

Murray Rothbard fully destroys the arguments in favor of Hillarycare (or any socialized health insurance scheme, for that matter) in “The Devilish Principles of Hillarycare,” the 14^th installment of the 30 Day Reading List.

He begins with some background, showing that supporters liked the program, but were concerned with issues relating to cost, how it might be financed, etc. Detractors had similar objections, but were not opposed to a centralized, federal bureaucracy administering healthcare on principle. Indeed, even now the Republicans, for all their bellicosity, aren’t opposed to the idea of Obamacare on principle; their slogan from day one has been to “repeal and replace” it, ostensibly with their own centrally planned and managed version.

Anyone who truly espoused the notion of free enterprise or personal freedom would simply repeal not only Obamacare, but all of it, the whole rotten mess. Healthcare totalitarianism does no one any good, save for the politically well-connected who benefit greatly from government largesse. So then, as now, the real dispute is that the “devil is in the details.” But, as Rothbard so brilliantly exposes, the “details are petty demons compared to general principles, where Lucifer really lurks.” He lists eight points central to any socialized health insurance system, and comments on each.

Guaranteed Universal Access: For the healthcare totalitarian, a government mandate is supposed to magically provide everyone with universal access. The actual economics of the industry, the reality that resources – land, labor, capital-goods – are scarce, never makes it into their plans. They simply assume the number of physicians is a constant; that people will continue to enter the profession at the current rates, and all their calculus is based on this fallacy. Rothbard notes that the dollar is what gives people universal access, and that any other scheme is despotic.

Coercive: Every such government program is coercive, or, as Ron Paul says, “everything government does is a mandate.” This is all provided for by coercing money from individuals, and as Rothbard notes, “this extortion is not changed by calling these taxes ‘fees, […] premiums,’ or ‘contributions.”

Egalitarian: Healthcare totalitarians cry foul when they observe what they call the “two-tier” healthcare system, wherein the rich have access to the best care and the poor are left to scrounge for the scraps. First, as Rothbard adds, in a free society there would actually be a multi-tiered system, where various levels of care can be provided depending on the price one is willing to pay. And, because there wouldn’t be a “universal system,” doctors and healthcare professionals would compete for patients, thereby improving service and driving down prices. But also, we see from Yuri Maltsev’s account from the Soviet Medical Bureaucracy that an actual two-tier system exists even in the people’s Utopia.

Collectivist: The natural progress of the market, once adulterated by the state, is towards larger and more consolidated firms who grow on the power and privilege of government. Contrast this with the unhampered market, where firms only grow by attracting willing business from voluntary consumers. But as the market becomes more and more tightly regulated, government collectives such as HMOs, or in modern terms, “state exchanges,” take over and individual preferences, innovation, and solutions are driven out or prohibited.

Price Controls: The intrusion into the market almost always comes from the idea that healthcare costs too much. Because the poor and uninsured can’t afford to pay the high costs, government must intervene. But the idea that costs are too high can be quite misleading. When measured as a percentage of GDP, the numbers might seem formidable. But percentages only tell us that more is being consumed, not that prices are rising. Rothbard explains that an increase in the percentage of GDP in the computer market hardly means that computers are more expensive. In fact, since they first hit the market, the prices of personal computers have fallen dramatically. Since the government and those who work in government don’t understand this, they resort to arbitrary price controls.

Medical Rationing: When the government provides a “free” service, or institutes prices controls as above, it provides incentives for over consumption and disincentives for production. This leads to shortages, and just like above, the government doesn’t understand this either. So they begin rationing services.

The Annoying Consumer: Rothbard explains how on the market the consumers are kings and queens, the firms which they patronize act as servants, slavishly working to please their masters. The same cannot be said of government service providers. They view customers not as someone to be served, but rather as unwelcome intruders who interrupt their peaceful “work.”

The Great Leap Forward: Rothbard concludes by equating the idea of a nationalized system as a “great leap forward” for the U.S. He writes: “The Clinton health plan is not ‘reform’ and it doesn’t meet a ‘crisis.’ Cut through the fake semantics, and what we have is another Great Leap Forward into socialism. He goes on to say that while the U.S. is moving closer to a socialist, or at least fascist, economic system, the former communist countries are establishing a more laissez-faire approach. Clearly something was wrong with centralized government planning in those countries, if, when given the choice, the people began moving away from it formally.

On Conservationism

In “The Watermelon Summit,” part 11 of the 30 Day Reading List, Thomas DiLorenzo explains the difference between an environmentalist and a conservationist.

The environmentalist “is a totalitarian socialist whose real objective is to revive socialism and economic central planning under the subterfuge of ‘saving the planet’ from capitalism.”

The conservationist

is someone who is actually interested in solving environmental and ecological problems and protecting wildlife and its habitat. He does not propose having government force a separation of man and nature by nationalizing land and other resources, confiscating private property, prohibiting the raising of certain types of animals, regulating human food intake, etc.

He describes how the modern environmentalist movement sprang from the ashes of the socialist movement after the demise of the Soviet Union and its satellites some twenty years ago. This, he says, helps to explain the term watermelon – those who are “green” outside but “red” within – and how environmentalists are always so bent on using the force of the state to realize their totalitarian ends.

A great deal of research and scholarship has gone into the theory of free market environmentalism (FME), or actual conservationism, and some cases where the market has been allowed to work have shown how effective FME can be. My goal here is to highlight one such case and describe some of the theory behind it.

The best way in which to defend the property of individuals and ensure the environment is protected is to do away with so-called public property. By ensuring that every last thing may be homesteaded the tragedy of the commons will cease. Allowing individuals to defend their property rights will provide all the incentives necessary for would-be polluters to reduce or eliminate their harmful or damaging behavior.

Because we tend to jealously protect our things it is natural that environmental concerns would be taken care of in the same way. Individuals don’t want thieves coming into their homes and taking their things, and therefore take precautions to mitigate the threat of robbers. In the same way, farmers don’t want rustlers, poachers, or wild animals to threaten their livestock, so they erect fences, build barns, and employ guards. The same is true for all other property, including endangered species, waterways and the atmosphere.

In the early 1990s Africa was facing a declining elephant population and some estimates suggested the beasts would be entirely extinct within a few decades. In an effort to preserve the animals an international organization met in Europe and agreed to ban the ivory trade. This of course would only incentivize black market commerce, so Africans, the ones who actually had a direct interest in the issue, ignored the ruling and employed their own program.

The governments of several African nations decided instead of socializing it all, to privatize the elephants. Land owners would sell hunting permits for tens of thousands of dollars and thus had a substantial interest in protecting the game animals. The result was that elephant populations boomed in those countries under new management and the revenue generated from the permits allowed investment to take place that otherwise would have been impossible.

Anyone doubting whether such systems can’t work long-term, or believes they couldn’t be applied to other species, ought to ask why there never seems to be any diminishing chicken, pig, cow or other livestock populations. The answer of course is that property owners have huge incentives to protect and propagate their stock.

Finally, a note on environmentalism in general: According to subscribers of man-made global warming or climate change theory, if you don’t believe the consensus among the scientific community you’re anti-science. The issue has been settled, they say, and we’d all best get on board. Failing to join with them means you’re not only anti-science, but you’re obviously a misanthrope, since the very future of humanity is at stake.

Recall, there was a consensus on the issue of the Earth being the center of the universe in the 15^th Century. It was the dissenters who finally showed the truth. And what of the hair-brained notion of the earth being round, and not a flat surface, as virtually everyone once believed? Even modern science is not immune to such revision in light of new information. It was only last year scientists made a discovery that could change everything regarding the speed of light previously held as undisputed fact. True environmental science is not consensus based, but instead involves a healthy amount of skepticism and curiosity.

I, Spoon

Jeffrey Tucker tells the story of a meeting he once had with an associate who is a self-described socialist. Sitting at a table over breakfast, in a gorgeous hotel dining room with a friendly wait staff, being served some of the most deliciously prepared food with fruits from around the world, the two ate for not more than a few dollars. And this person is, according to Tucker, still a socialist, despite living in a world full of material comfort and wealth – all provided by capitalism.

The question: “Why Don’t They Get It?” is one that Lew Rockwell asks in this, the 10^th installment of Robert Wenzel’s 30 Day Reading List. The answer Rockwell gives is two-fold; there is a dearth of understanding in basic economics and a poor imagination of what life might look like in the absence of the state.

The solution to the first problem is of course to educate, as best as possible, the greatest number of people on how the economy works. Everything from how prices are formed to what impact changes in the interest rate has on human behavior, what inflation is, and how particular regulations impact the market, in short, to see the unseen.

The second problem is not so easily overcome as the first. For this there must be knowledge of sound economic theory and research into how private institutions can deliver the services government has usurped from the market. This is not to say that economists and libertarian philosophers should plan how a free society might function, but simply to illustrate for others that alternatives are viable and what they could look like.

A topic that comes up quite frequently in such discussions is how roads would be provided by the market if government wasn’t in the business. The reactions people have are indicative of not only their own misunderstanding, but of how archaic the state is in such areas.

I was speaking with a friend the other day about a conversation he had with someone about private roads. This other person opposed the idea partly on the grounds that having to stop and pay a toll every time he moved from one road to another would be wholly inconvenient. And of course it would be, but the technology available today is more than capable of handling the process so that stopping at toll booths wouldn’t be at all necessary. The government however isn’t advanced enough to think in those terms, they probably would erect toll booths at every intersection, because without an incentive to innovate and develop more consumer-friendly processes, they stagnate, and we end up with the most obtuse and inconvenient systems.

Rockwell writes that “Once you understand economics, the reality that everyone sees takes on a new significance… In fact, even the smallest products dazzle the mind once you understand the incredible complexity of production process and how the market manages to coordinate it all toward the end of human betterment.” This is absolutely true.

Just think of the concept of disposable flatware. We buy packages of plastic forks and spoons that are derived from oil dug from the deserts in the Middle East. The oil is put on ships, sailed around the world, pumped into refineries, processed into plastic and sent to factories where it’s made into flatware. The forks and spoons then get boxed up, put on trucks and sent to various distribution centers around the country before making their way to retail stores. Then we get into our cars and drive to the store, walk to the appropriate row and buy the product, use it and throw it away, all to avoid a load of dishes.

But the truly beautiful thing is that everyone benefits from this and no one planned it. Every actor in the process makes a small profit, including the consumer, who gains the psychic profit of more leisure time after dinner. No committee was necessary; no bureau is tasked with ensuring this system works. Indeed, any committee or bureau would only gum up the works and make this whole process more costly.