Posts tagged with: government debt

Untitled 4Even when we agree on what Biblical principles should guide our political choices, evangelicals from the left and right rarely agree on policy solutions. But there is one area where there appears to be an increasingly significant level of agreement: the immorality of our national debt.

At Christianity Today, David P. Gushee — an ethicist and politically progressive evangelical — explains why the $17 trillion national debt is both immoral and unwise:

Most progressive evangelicals who address government spending focus on compassion issues. They connect God’s care for the poor to U.S. government spending priorities. This often seems to mean by default that all cuts to social welfare spending are bad, and that all increases are good.

I agree with my progressive evangelical allies that our government—which projects spending $3.77 trillion in fiscal 2014—seems to have sufficient resources to provide for the sick, the aged, the poor, and the uninsured. I agree with an overall reading of the Bible that prioritizes physical human needs over most other priorities. But I protest a too-easy move from “God cares for the poor and calls Christians to do the same” to “God wants the secular government of the United States to spend x on social welfare.” Translating a sacred text into a political ethic is not that easy.

Still, we have a moral problem on our hands: While our nation budgets $3.77 trillion for spending in fiscal 2014, it forecasts revenue of $744 billion less than that. If a nation does that for long enough, it ends up with a debt of $17 trillion—and rising.

A government that develops a pattern of spending considerably more than it raises behaves immorally. But its immorality is not simply the immorality-as-immediate-hardheartedness-to-the-poor, so often decried by my friends.

Read more . . .

noun_project_19538As the US federal government sidled up to the debt ceiling earlier this week without quite running into it, one of the key arguments in favor of raising the debt ceiling was that it is immoral to breach a contract. The federal government has creditors, both from whom it has borrowed money and to whom it has promised transfer payments, and it has an obligation to fulfill those promises.

As Joe Carter argued here, “Member of Congress who are refusing to raise the debt ceiling (or raise taxes) until their ancillary demands are met are acting immorally, since they are refusing to pay the debts they themselves authorized.”

But as Connie Cass writes, the idea that the United States has never defaulted isn’t quite true. As she writes,

America has briefly stiffed some of its creditors on at least two occasions.

Once, the young nation had a dramatic excuse: The Treasury was empty, the White House and Capitol were charred ruins, even the troops fighting the War of 1812 weren’t getting paid.

A second time, in 1979, was a back-office glitch that ended up costing taxpayers billions of dollars. The Treasury Department blamed the mishap on a crush of paperwork partly caused by lawmakers who — this will sound familiar — bickered too long before raising the nation’s debt limit.

So if it is immoral to default, then America has done so at least twice.
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Shutdown DealThe U.S. government shutdown ended last night with a budget agreement that raises the debt limit, funding the government until February.  Acton director of research, Samuel Gregg, addressed this in a new post at Aleteia. He says:

Once again, I’m afraid, the United States Congress and the Administration has opted to live in un-truth by denying the dire fiscal realities facing America. Since August 2012, the total public debt of the United States has increased from $16,015 trillion to $16,747 trillion. And in the meantime, the size of the federal government also continues to grow. How much more debt do our political masters think Americans want? How much bigger do some of them think the federal government should be? Is there any upper limit in their mind?

But it isn’t just a question of the failure of legislators and government officials. There are, it seems, a good number of American citizens who simply don’t care about fiscal responsibility, not to mention plenty of businesses that prefer corporate welfare rather than actually competing in the marketplace.

In Gregg’s newest book, Tea Party Catholic, he says that governments and individuals running up high levels of debt may be dealing with a “deeper moral disorder.” He quotes Benedict XVI who said that living off of debt is “living in untruth.” (more…)

Pin not actual size.

I commented last week on the “textbook bubble” (here) and have commented in the past on the “higher-ed bubble” and the character of American education more generally (see here, here, and here). To briefly summarize, over the last few decades the quality of higher education has diminished while the cost and the number of people receiving college degrees has increased. The cost is being paid for, in large part, through government subsidized loans. But with the drop in quality and increase in quantity, a college degree is not as impressive as it used to be; in many cases it no longer signals to employers what it used to. When a critical mass of those loans goes into default, we will have another housing-bubble-esque crisis on our hands. At the same time, government loans, which are largely indiscriminate with regard to the risk of the applicant and guaranteed on the backs of taxpayers, have incentivized colleges and universities to raise the costs to students for the sake of increased expenditures, inflating the bubble even more. Now, Alex Williams of The New Times reports last Friday,

The idea that a college diploma is an all-but-mandatory ticket to a successful career is showing fissures. Feeling squeezed by a sagging job market and mounting student debt, a groundswell of university-age heretics are pledging allegiance to new groups like UnCollege, dedicated to “hacking” higher education. Inspired by billionaire role models, and empowered by online college courses, they consider themselves a D.I.Y. vanguard, committed to changing the perception of dropping out from a personal failure to a sensible option, at least for a certain breed of risk-embracing maverick.

An increasing number of students are realizing that they, to quote Good Will Hunting, do not want to be $150,000 in debt for an education that they could have gotten “for a $1.50 in late charges at the public library.” (more…)

Writing on The American Spectator website, Acton Research Director Samuel Gregg looks at the strange notion of European fiscal “austerity” even as more old continent economies veer toward the abyss. Is America far behind?

Needless to say, Greece is Europe’s poster child for reform-failure. Throughout 2011, the Greek parliament passed reforms that diminished regulations that applied to many professions in the economy’s service sector. But as two Wall Street Journal journalists demonstrated one year later, “despite the change in the law, the change never became reality. Many professions remain under the control of professional guilds that uphold old turf rules, fix prices and restrict opportunities for newcomers.” In the words of one frustrated advisor to German Chancellor Angela Merkel, “Even when the Greek Parliament passes laws, nothing changes.”

Politics helps explain many governments’ aversion to reform. Proposals for substantial deregulation generates opposition from groups ranging from businesses who benefit from an absence of competition, union officials who fear losing their middle-man role, to bureaucrats whose jobs would be rendered irrelevant by liberalization. The rather meek measures that Europeans call austerity have already provoked voter backlashes against most of its implementers. Not surprisingly, many governments calculate that pursuing serious economic reform will result in ever-greater electoral punishment.

In any event, America presently has little to boast about in this area. States such as Wisconsin have successfully implemented change and are starting to see the benefits. But there’s also fiscal basket-cases such as (surprise, surprise) California and Illinois that continue burying themselves under a mountain of debt and regulations.

Read “Why Austerity Isn’t Enough” by Samuel Gregg on The American Spectator.

Would dissolving the European common currency, as proposed by the French free-market economist and entrepreneur Charles Gave in his book Libéral mais non coupable (“Liberal But Not Guilty”) free the Old Continent to stand upright on its financial feet again? Or would dissolving the currency drastically end the European project altogether, as some pro-Euro technocrats in Brussels fear?

Charles Gave, the chairman of the investment firm GaveKal, (and whose lecture I listened to at a 2011 Acton Conference Family Enterprise, Market Economies, and Poverty in Rome), offers an excellent economic policy analysis in answering these urgent questions.  However, as you will read below, the European side of the financial crisis cannot be fixed in purely economic terms.

In his chapter “Europe: A Turtle on its Back”, Gave says that the EU’s already slow-moving economic tortoise is now in a worse position while laying flat on its back – its shell “heavily weighed down by a systemic debt trap” whose origins are found in keeping the common currency afloat at all costs.

Gave believes that the only way to get the turtle walking upright again would be lighten its load by effectively dissolving the heavily debt-tied euro and restoring national currencies to pre-1999 monetary standards. In Gave’s opinion, a restoration of national currencies across the Eurozone would force member states to return to a culture of self-reliance, that is to say, to count more on their own national fiscal and monetary means and standards.

The positive effect would also mean abandoning the quasi-idolatrous ways in which Europeans go to save their common currency while closing a blind eye to less responsible member states’ reckless spending.

Gave’s criticism of local/national responsibilities and the very origins of debt raise deeper questions about the cause of the  European debt and monetary crises, but it is far from offering a  more complete picture of the problem.

Acton’s research director, Dr. Samuel Gregg, helps us fill in the gaps.  As he said in a recent editorial for the American Spectator:

Europe does indeed face huge monetary challenges. Having a common currency while permitting euro-members to violate mutually-agreed debt limits was always a recipe for disaster. Greece could happily splurge on adding tens of thousands of public sector workers to the government’s payroll and financing Chicago-esque patronage politics, while Portugal built dozens of now-idle, often half-finished soccer stadiums.  Why? Because everyone knew if things went bad, then preserving the euro (a ‘sacred cow’ for Europe’s political class) from the impact of nations’ defaulting meant that heavyweights like Germany would go to considerable lengths to try and prevent a currency-meltdown.

Yet this amounts to only a partial — and therefore inadequate — explanation of Europe’s present disarray…[It] can’t disguise the truth that there’s something even more fundamental driving Europe’s economic crisis.

From the beginning, post-war Social Democracy’s goal … was to use the state to realize as much economic security and equality as possible, without resorting to the outright collectivization pursued by the comrades in the East.  In policy-terms, that meant extensive regulation, legal privileges for trade unions, “free” healthcare, subsidies and special breaks for politically-connected businesses, ever-growing social security programs, and legions of national and EU public sector workers to “manage” the regulatory-welfare state…with little-to-no experience of the private sector.

None of this was cost-free. It was financed by punishing taxation and, particularly in recent years, public and private debt. In terms of outcomes, it has produced some of the developed world’s worst long-term unemployment rates, steadily-declining productivity, and risk-averse private sectors.

In sum, the idolatrous preservation of a European common currency and the ensuing “debt trap”  and “domino default” which Gave articulates in his book  is more fully understood when we link the European financial crisis to a crisis of Christianity — a  faith which makes challenging demands on practicing members’  moral interrelationships, levels of risk aversion, and practical ways in which they care for fellow citizens and see their moral duties relation to their neighbor and society.

Christianity, as defined so well by the Catholic Church’s teachings on subsidiarity, demands that social problems must be first solved at the individual, local level. Only if the local and personal proves insufficient should the problem to be taken to higher levels, with the state as the means of last resort.

Subsidiarity – a guiding principle to all responsible Christians – helps limit public debt by relegating moral duties first and foremost to the private sphere.  Subsidiarity is a check against  forms of collectivization and the expensive public costs involved. When too much of the moral duty is placed on the state, public costs grow and debt is possible.  When it is not, the state’s welfare machine is tends to shut down.

In conclusion, if it is true that the vast majority of Europeans no longer practice their Christian faith or take their charitable duties very seriously, one can rightly doubt how easily it will be them to free themselves from the weight of unsustainable debt  (see also Sam Gregg’s ALS lecture below on this topic). If non-practicing Europeans tend to pass on more of their individual moral responsibilities to the state  for the welfare of the elderly, sick and need people of society, it ends up being a costly delegation of Christian freedom and responsibility.  In economic consequences, this makes the EU a fertile ground for a systemic debt traps and precarious monetary crises.

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A week ago, Dr. Samuel Gregg addressed an audience here at Acton’s Grand Rapids, Michigan office on the topic of “Europe: A Continent in Economic and Cultural Crisis.” If you weren’t able to attend, we’re pleased to present the video of Dr. Gregg’s presentation below.

In a recent article in the Washington Post, Juan Forero and Michael Birnbaum recommend that in the face of the looming specter of Greek debt default, Europe may learn a few lessons from South America. In particular, they point to the good example of Uruguay and the bad example of Argentina.

According to the authors,

In a story that may provide a lesson for Europe, one country, Uruguay, that was on the edge of financial oblivion organized a fast, orderly and negotiated response that revived the economy and ended a run on banks. Another, Argentina, spiraled into a chaotic default and remains a pariah in world financial markets.

The article lists a variety of reasons, such as tax evasion, political stagnation, and civil unrest, with regards to why Greece is in danger of becoming the next Argentina. There is one aspect, in particular, though, that sheds some interesting light on current monetary practice. According to the article,

Greece is hamstrung by its ties to the euro, which it cannot devalue to make its exports cheaper, and leaving the currency zone might prove even more painful.

Though currency debasement has been possible since time immemorial, it has become easier ever since the “Nixon Shock” of 1971, when the United States ended its tie to the gold standard, affecting every other nation which had tied its own currency to the U.S. dollar for the sake of stability. However, from that point on, most countries have been operating with purely fiat-based currency; a government’s central bank can print as much or as little money as they desire, since its value has no stable grounding. (Grounding the dollar’s value to a specific amount of gold prevented the U.S. from printing more money than gold that it could be exchanged for.)

In a recent article in the Journal of Markets & Morality, James Alvey highlights the analysis of James Buchanan on the ethics of public debt and default. With regards to default, Buchanan identified two common means: open default or concealed default through inflation. By inflating its currency, a country can, in effect, cheat its bondholders out of the amount promised to them by repaying its debts with debased money. To do so is effectively concealed default. Notably, Alvey writes, “Buchanan says that the U.S. government did ‘default on a large scale through inflation’ during the 1970s,” the very decade in which we left the gold standard.

What is fascinating about the current crisis with Greece is that its central bank does not have sole control of the euro. Despite being a fiat currency, its decentralized nature gives it a certain stability.  Concealed default is not an option for Greece, forcing it to make the hard decisions necessary to avert defaulting on its debt or to do so openly.

For more on the history and moral implications of currency debasement, see Juan de Mariana, Treatise on the Alteration of Money, recently translated and published by Christian’s Library Press.

Acton director of research Samuel Gregg offers his thoughts on last night’s GOP Roundtable in this NRO Symposium. Gregg thinks the debate offered an important alternative to the government-driven economy talk that fills the news every other night of the week.

In a week in which two American economists from the non-Keynesian side of the ledger received the Nobel Prize for Economics, last night’s GOP debate gave us some insight into the depth and character of the various candidates’ free-market commitments and the different policy priorities which flow from the various forms of those commitments.

But if the ideas were strong, they were a reminder of separation between our free market ideals and our considerably less free economy:

For the most part, the candidates focused upon the institutional background that either impedes or facilitates economic growth: the regulatory environment, tax levels, trade policy, monetary policy, etc. Listening to the responses was a salutary reminder of the gap betweenAmerica’s free-market aspirations and rhetoric, and the rather different Eurosclerotic economic reality that has slowly envelopedAmerica– and not just over the past three years, but over several decades.

The only way we’re really going to get our economy going, is by addressing entitlements.

The surprising omission was substantial discussion of the issue of welfare reform and the related question of America’s public debt. While Obamacare was continually criticized because of its costs, that’s only part of the picture. Substantive entitlement reform is indispensable if we want to significantly reduce the spending and deficits that threaten to suck the life out of America’s economy. Addressing this subject is of course very politically risky because far too many Americans are more attached to the welfare state than they care to admit. But if fiscal conservatives aren’t willing to tackle this issue, then who will?

Acton’s tireless director of research Samuel Gregg has a post up at NRO’s The Corner in reaction to yesterday’s bad poverty numbers (46.2 million Americans live below the poverty line now—2.6 million more than last year). Gregg is ultimately not surprised about the increase, because not only does the American welfare state produce long term dependence on governmental support, but the huge debt incurred by poverty programs tends to slow economic growth.

It is now surely clear that the trillions of dollars expended on welfare programs since the not-so-glorious days of the 1960s have not apparently made much of a dent in significantly changing the ratio of Americans in poverty.

In some instances, America’s welfare apparatus may have prevented some people (especially the elderly) from falling into abject poverty. There is, however, very little evidence that it has helped millions of people out of relative poverty. There is also plenty of data to indicate that many welfare programs have produced intergenerational dependency on the state—a point that even Bill Clinton seemed to have grasped by the mid-1990s.

Gregg then warns against the temptation to double down on government-as-the-answer, arguing that we don’t have the fiscal leeway to experiment as we did in the 1960s.

We need to keep these serious failures of America’s welfare state in mind because these new poverty numbers will almost certainly be used as an argument by some people of good will (as well as those whose motives are far less noble) to resist any reductions in welfare spending, despite America’s far-from-healthy debt and deficit situation. Yet the sheer size of government spending on entitlement programs (by far the biggest item in the federal government’s budget) makes cuts in these areas inescapable if—I repeat, if—our political masters are serious about wanting to balance the government’s books.

Indeed, such cuts are assuming an ever-increasing urgency in light of the studies which continue to appear indicating that crushing levels of public and government debt run the risk of significantly impeding growth. That’s worrying, not least because a slowdown in growth will hurt those in poverty far more than the wealthy. Strong growth rates are one of the most powerful antidotes to poverty – just ask anyone living in mainland China or India. More welfare spending is simply not the answer.

Full post here.