Jump to content
Objectivism Online Forum

Hypothetical o'ist government solution to US national debt

Rate this topic


Nate

Recommended Posts

I was discussing the issue of the national debt in the chat and how it would be addressed by an o'ist government.

The individual I was talking to took the position that spending and taxation should be reduced gradually.

As I understand it, they felt that the choice was between the lesser of the two evils of not paying the nation's creditors and taxation

My position was that taxation should immeadiately stop. That this is robbing peter to pay paul, and that looting (taxes) to prevent looting (repayment of moneys) doesn't make sense.

I also questioned the ethics of investing in government loans (bonds, etc) in the first place. Where does objective investor think his profit is going to come from?

Any thoughts on this topic are appreciated.

Edited by Nate
Link to comment
Share on other sites

My position was that taxation should immeadiately stop. That this is robbing peter to pay paul, and that looting (taxes) to prevent looting (repayment of moneys) doesn't make sense.
That is correct. Of course coupled with an immediate stop to taxation, there also has to be an immediate stop to government spending. It's mistaken, though, to think that the debt should just be cancelled, since the government has appropriated huge amounts of wealth that can be sold to pay the debt. Although, since the liquidation of government assets cannot be instantaneous (except by simply saying "We quit -- do what you want"), there does have to be some period of time over which the government gets out of the theft-and-acquisition business. Perhaps a year? Since nobody has a magic "taxes begone" wand to wave, the intellectual prerequisites for actually eliminating taxation would have to first be met, so it might be that an orderly transition to freedom would be possible in 6 months or two -- it's impossible to make a rational prediction now.
Link to comment
Share on other sites

If taxation immediately stops, not only will the government grind to a halt but payment on govt. securities would as well. This would be a MAJOR economic problem, as well as likely causing some pretty severe foreign policy problems considering the amount of government debt held outside the US.

Although I don't usually, I have to agree with Vladimir on this one. Shifting to a new mode of repayment of liabilities is not going to give debt holders confidence. While one can stop spending quickly and pay down debt, until the alternate method of financing the government is proven, you will have a tough time avoiding a global financial crisis.

I doubt six months or a year would be enough to give creditors confidence that the new financing system would work.

The big issue I have is that there is no behavioral motivation to reduce spending or taxation. This would ultimately have to be legally limited before it begins to happen, and that would happen slowly over time as philosophical basis for the country shifts.

Edited by KendallJ
Link to comment
Share on other sites

David, regarding restitution, I completely agree. You've said what I said in the chat.

Although I didn't previously state it, I also agree with the rest of what you wrote as well.

Also, charities would likely be established to reimburse innocent injured parties for the disparity between the amount looted and the amount refunded.

I guess I should not have used the word immeadiately. Very quickly, relative to the amount of time suggested (several+ years?) that this individual seemed to be suggesting. I should have asked specifically rather than assuming, but didn't even realize that I was making this assumption at the time.

Link to comment
Share on other sites

I was discussing the issue of the national debt in the chat and how it would be addressed by an o'ist government.

The individual I was talking to took the position that spending and taxation should be reduced gradually.

As I understand it, they felt that the choice was between the lesser of the two evils of not paying the nation's creditors and taxation

My position was that taxation should immeadiately stop. That this is robbing peter to pay paul, and that looting (taxes) to prevent looting (repayment of moneys) doesn't make sense.

I also questioned the ethics of investing in government loans (bonds, etc) in the first place. Where does objective investor think his profit is going to come from?

Any thoughts on this topic are appreciated.

There are three ways the current US government funds it's operations: bonds (debt), direct taxation (confiscation) and currency debasement (inflation). Right now all three are being employed and are accelerating toward what might turn out to be a rather dramatic conclusion.

Bonds are essentially loans from interested parties...individuals, governments, corporations. Principle and interest are repaid by either selling more bonds, taxation or printing money. Politically, bonds are more appealing to citizens and politicians because they align the goals of government with the selfish interests of otherwise disinterested individuals. The act of issuing government bonds doesn't violate anyone's rights, but the eventual repayment does. So it does (eventually) violate property rights.

Direct taxation is confiscation, pure and simple. It's despised by both politicians and citizens, but for different reasons. A limit exists to which taxes can be imposed without inducing open revolt. There also exists an inverse relationship (for the most part) between rates and collections: the higher the rates, the lower the collections...and visa versa. Taxes are an outright violation of property rights...and terribly inefficient.

Currency debasement involves creating more money. This can only happen if the currency in question is controlled exclusively by the government…and always leads to economic collapse. Always. This is also an outright violation of property rights, but its so subtle that most people don't know it until it's too late. Right now the US dollar retains less than 5% of it's pre-1912 purchasing power.

Government bonds in an Objectivist government could be safely used in a defense emergency...such as a war. The return of principle and the payment of interest could come from taxation in some form...either a direct tax on citizens or a duty on foreign goods. It can also come from citizen donations. Also, should the Objectivist government prevail in the conflict, retribution could rightfully be extracted from the aggressor(s). Foreign military powers who either threaten or initiate force present a far greater danger to the rights of a nation's citizens than do taxation or bonds. If the criteria for determining what constitutes an emergency is objectively defined and the method used is restricted to the duration of the conflict, bonds and taxes would be an acceptable means of funding. For the normal, day-to-day expense of government, methods such as users fees, fines and donations would suffice. There would be no need - indeed it would be illegal - for funding schemes that permanently impose upon the rights of the citizens. It would also be illegal for government to accumulate wealth.

The Founding Fathers reserved for the government the ability to tax citizens, but only on a temporary basis. The passage of the 16th Amendment ended that. Not coincidentally the Federal Reserve Act was passed almost with the same stroke of the same pen...creating the first central bank in US history. Since then, it's "management" of the money supply has served as a stealth tax, eroding purchasing power and destroying an otherwise stable and trustworthy currency. Since the US dollar was completely unhinged from it's gold standard peg in the early '70's, it has become the defacto reserve currency for most central banks around the world. The US dollar's "value" is based on the perception that it has value…that it will be accepted as a form of payment. What most Americans don’t know is that it’s illegal (within US boarders) to decline payment in US dollars…thus ensuring (by force) that it will be accepted as payment. It's a known fact that fiat currencies have a 100% failure rate...and gold coin and gold standard currencies have a 0% failure rate. Eventually the US will be forced to return to sound money.

Personally I advocate an incremental approach with the final goal of returning taxation to a temporary method for funding defense. The long term political goal would be to end all governmental involvement in the economy, eventually prohibiting it by the passage of a Constitutional Amendment, returning to the government it’s role as the enforcer of the currency standards (weights and measures) and the repealing of the Legal Tender laws.

The first increment would be to change the debate by advocating equal tax rates. A person might argue that the current graduated system violates the 14th Amendment’s “Equal Protection Clause”. This part would take time…decades, perhaps. Although most Americans still respect the Constitution, it’s been almost completely abandoned by the intellectuals. At the same time I would advocate a return to sound money…meaning a return to the gold coin currency and gold standard currency. I believe Richard Salsman in “Gold and Liberty” sketched out a relatively simple plan for returning to the gold standard…which would take between 6 months and one year to fully implement. Keep in mind that the Federal Reserve dollar isn’t the first time the US has experimented with a fiat currency; the Lincoln administration imposed a fiat system during the Civil War. The return to the gold standard was fairly quick and didn’t create too many problems.

The change to “equal” tax rates would have high public appeal, but the real modus for change would the return to a gold and gold backed currency. That alone would do more to stop the current deficit spending and drunken stumble to the Left than anything else. Our current condition did not happen all at once: it happened incrementally, beginning in the late 1800’s. Incrementalism is a proven method and succeeded in changing the United States from a (almost) pure Capitalist, individual rights respecting society to what it is today. There’s no reason to think it can’t be reversed in like manner. I think also that such an approach would be greatly aided by a deep and prolonged economic recession or an outright depression. If enough people of the right caliber, knowledge and courage were available, I think they could open enough eyes to the truth: that the path to personal security – both economic and political – can only be achieved by returning government to the role of protecting individual rights.

Link to comment
Share on other sites

Government spending is the primary issue to focus upon. Debt and taxation are simply consequences of government spending. Defaulting upon existing government debt would be just as immoral as debasing the currency, and would have similarly disastrous consequences. If spending were miraculously immediately cut to police, courts, and national defense, plus the payment of interest and principal on existing debt, taxes would probably need to fall less slowly than spending for that to work.

In any case, working out the technical details of retiring government debt should be about 1000 times easier than convincing the population to support the philosophical ideas that would allow such an economic program to be initiated and sustained.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...