With all the buzz around the raising of the debt ceiling racing around Washington today it surprises me not in a good way that no one seems to be asking the question as to why does the government need to be in debt at all. As if we go back to our high school civics class we will remember that financially the (American) Government has only two means to raise revenue and those are the collection of taxes and the printing of currency. Nowhere in there is the issuance of debit and yes before you write me to explain the difference, please take this as exactly my point.
With this said now, lets talk about the “role” of government at least a “democratic” one to better understand why it might or might not need to hold itself in debt. As first what is the role of “Government” and the answer is simple as just as the name implies “governance” or providing “social order” is its mission statement and its only mission. To achieve this it has the rights to legislate, enact and enforce laws in line with its constituency. Additionally in support and protection of this obligation is the additional “obligation” to protect its people from outside threats along with enforcing the “will” of its people. Yes, know the later one is rather interesting however it’s also one of the reasons we are here today.
So how did we [America] get here, while this gets more complex than a Dan Brown Novel, the answer is the “enforcement of our will”, in short war, policing action, or conflict take your pick. As in the normal operation of Government there is NO reason it should operate its social programs outside of a balance budget as debt is an economic lever and not a social one as when debt is taken on, it represents the ability to repay based upon future earnings. Thus if we loop back we see that unlike business the opportunity to earn additional revenue doesn’t exist as being the government sources are “finite” as they are the “source”.
Ok, look at it this way, the government issues 1,000,000,000 (total) dollars of currency for round numbers and collects 1,000,000 or 10% in tax. Now it decides this isn’t enough currency and doubles up so now there is 2,000,000,000 (total) dollars and it collects 2,000,000 or 10% in tax. Notice something, yes the “amount” changes however the “value” of the tax collected does not. This is because the value of money is directly proportional to the amount of it. Sorry to say printing more doesn’t mean you get more and this is one of the problems we’ve created for ourselves.
Ok, sure there are some bright readers who say change the percentage not the amount and that is where I’ve got you as when you do that you start to become a market maker and that is not the role of Government in a democratic based society with a capitalist economy as when you take taxes, you are redistributing wealth in the market and this should be minimized as much as possible as the more spend, the more of the market you become and the more of the market you become the more of the market you “make”. In the end the greater the market is made the less efficient it is hence the mess we are in as for example in tax year 2010, roughly 45% of households, or about 69 million, will end up owing nothing in federal income tax, according to estimates.
So when the government raises the debt ceiling know two things its because half of the American people don’t pay taxes and second is the half that does will now have to pay double…