Monday, September 15, 2008

Why We Want A Balanced Budget

... because banking crises occur.

In 1873, there was a massive financial panic. The country had overbuilt railroads and other industries as everyone sought to cash in on the latest growth area, much like the dot com bubble around 2000 and the housing bubble of this year. In 1873, banks failed, people lost their money, companies went bankrupt, all the things we're seeing today. For a variety of reasons, the government could not step in at that time and calm things down.

Today, we have much more flexibility and many more tools to deal with these crises. Well, we would, if we didn't have a national debt of about $9.7T. We've blown through all that money, paying for unnecessary things. Whether that's massive increases in agricultural subsisidies or a bloated education budget or weapon systems for favorite congressional districts, the result is the same - a crushing debt burden that was incurred in the absence of a crisis.

Imagine what things would be like today if we did not have any national debt. There's no reason to have one - the things we bought weren't crucial and the taxes we could have paid to retire the debt weren't overwelming. Imagine what you could do to bail out a $150B loss at Lehman (with all kinds of requirements and punishments on the management staff at the company) if you had no national debt. It would be trivial. Even if you had to borrow money to do that, your comparative national debt would be this:

Current debt: $9,700B
Lehman debt: $150B

Bailing out Lehman's investors and stockholders would have been trivial. More later.

1 comment:

Anonymous said...

No matter what the cost or financial position of the US, do you want the government bailing out private businesses? I do not.