Tuesday, August 02, 2011

God Bless the National Debt

cross-posted from Dagblog

Let's get one thing straight: without a national debt, there is no national defense. This has always been true.

We can all sputter righteously about the evils of borrowing and debt, but a United States government that did not borrow would either have to do without any military at all or else make do with a tiny, ill-equipped military with troops who almost never got their pay, which is what we had before the Washington Administration. Access to credit has always been central to effective government operations, and especially to effective military operations. Gimmicks like "debt ceilings" and "balanced budget amendments" not only threaten the effectiveness of basic, everyday governance but make the government completely incapable of responding to an emergency.

Alexander Hamilton, our first Treasury Secretary, understood how important it was to finance government operations, because he had served at Valley Forge, where American soldiers went without food, without blankets, and without shoes. Hamilton did not blame the British for that suffering; he blamed the Continental Congress and he was right. (Congress was also to blame, after the Revolution, for refusing to pay the veterans of Valley Forge the pensions they had been promised. Next time you hear a "principled conservative" rhapsodizing over the Articles of Confederation, that's what they're rhapsodizing over.)

Hamilton (and Washington) understood that this was no way to run an army or a country, which is why they supported the Constitution, and why Washington backed Hamilton's program to put the nation on a sound financial footing. That footing required America to pay its debts, but also to contract them; nationalizing the debt, assuming the individual war debts run up by the thirteen states, was a key element in the program. God bless the national debt; it is part of the legacy of the Founders, and we'd be in trouble without it.

Of course, our national debt has grown much larger since FDR's presidency, an increase which is generally associated with New Deal social programs. But the largest New Deal program still kicking, Social Security, has taken in $2.6 trillion dollars more than it's paid out. (Social Security only "contributes to the deficit" to the extent that the trillions that have been taken from it for other purposes will need to be repaid.) But it was also under FDR that the United States went from having a fairly small standing army to having a huge, permanent military establishment. We did not demobilize after World War II as we did after previous wars. Instead, we built a global military bent on maintaining a significant technological edge over the rest of the world. That takes money. More than money, it takes financing. You don't maintain a fleet of superb fighter planes, or train people for Seal Team Six, by waiting for next month's withholding taxes to come in. The Army, Navy, and Air Force that we've had since the Forties are only possible because we undertake public debt.

The public's power to borrow is most important in emergencies, when there are pressing needs that simply can't wait. If we are ever attacked by a foreign power, we need to win the war first and pay for it later, just as we did during the Revolution. You don't wait to repel an invader until you've saved up for ammunition; if you do, it will be the invader collecting next year's taxes anyway. The same goes for responses to terrorist attacks or natural disasters. Cleaning up September 11 could not wait until the next April 15. Hurricane relief can't wait until we've moved other things around in the budget. And when the Mississippi floods, you have to stop the waters while they're rising, not when you've saved enough in this or that government account.

If politicians feel that the government debt has grown too high, they should consider raising revenues to pay for the programs they've voted for, rather than playing shenanigans with arbitrary "debt ceilings." (The debt ceiling doesn't prevent Congress from putting the government into debt; it just prevents the Treasury from issuing the bonds that keep the country running. It's like sending your kids to the market for a hundred dollars of groceries, handing them forty dollars, and forbidding them to let the store put the rest on account.) What the "debt ceiling" does is prevent the government from responding appropriately to emergencies when it's too close to whatever the artificial magical number is. What would we have done if, God forbid, there had been an earthquake and tsunami in California last month, when the Treasury had officially "exceeded its borrowing authority" and Congress was dithering around? Making it illegal to borrow for present needs, no matter the severity of those needs, is reckless and irrational.

And what would a federal balanced budget amendment do, except render the federal government permanently unable to respond to any event that hadn't been explicitly written into the budget eighteen months in advance? Surely, no one can believe that a "balanced" annual budget would not have every possible penny of the year's revenue spent in advance. The political process would demand that all of the year's revenue be spent, either directly or in tax rebates; if it would really take a Constitutional amendment to keep lawmakers from spending more than that, we should always expect that they will spend every cent that they are able. And how then would a "Budget-Balancing" United States respond to an unexpected military threat, or natural disasters, or any other crisis? How would it be able to respond even to a sudden economic downturn, which would unexpectedly lower the government's incoming tax revenue and throw the budget out of balance in the middle of the year. Imagine, for example, that the country underwent a massive financial crisis followed by a long economic slump while we had two separate armies fighting overseas. I know you can picture it if you try.

If the Republicans had passed a balanced-budget amendment back in 2005, when they had the White House and both Houses of Congress, our nation would likely have gone bankrupt in 2008, unable to deal with the banking crisis or to pay and supply our soldiers in Afghanistan and Iraq. We are lucky that no such suicidally absurd provision appears in our Constitution. And we are lucky that Alexander Hamilton long ago set us on a wiser and sounder path.

God bless the national debt, I say. I am grateful for its role in keeping our country healthy, safe, and sound. And may the credit of the United States extend without blemish for a thousand years.

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