We err, however, in considering this admittedly thorny problem insoluble. If you never studied history outside of America, you might believe that civilization began in the year 1776, and no noteworthy lessons can be learned from anything occuring before that date, aside from an occasional reference, perhaps, to Rome. In fact, however, kingdoms, kings, and empires go broke rather regularly; since a government lacks an organic limit to its lifespan, it generally continues until it is physically overrun by barbarians. This being the case, there are numerous historical examples of how to handle excess governmental debt, and as a devotee of History, I thought it might be useful if I offered these alternatives more widely. Pundits would have us believe that there are only three choices when a nation is faced with a massive burden of debt: Default (which is for some reason hideous and unthinkable) Inflation/Debasement of currency (which is what we’ve been doing, with little variation, for fifty-odd years), and finally, the outright sale of government assets. In fact,there are a number of other strategies.
Solution 1: Raise Taxes
Raising taxes is, of course, never popular: the enduring myth of Bad King John of England derives at least in part from the taxes he was forced to raise in order to pay the bills generated by his predecessor, Richard The Lion-Hearted (who conveniently died before they came due). One constant theme in the claim that the U.S. government debt is unsurmountable (around $30,000 per head at this time) is the implicit assumption that this debt would need to be balanced on the shoulders of the average taxpayer. Obviously, the AVERAGE taxpayer doesn’t have that kind of money. However, one of the major reasons for the explosion of the debt is not that the AVERAGE taxpayer hasn’t been paying his and her fair share all along, but that the absurdly wealthy, who could easily make do without one of several multi-million dollar mansions, have been let off easy, while multi-billion dollar corporations have often manipulated the tax codes to get out from under taxation entirely. These inequities could be adjusted. It’s been done. Oh, we understand that the entire purpose of government is to support entrenched power and wealth. But with that understanding, those who benefit very highly from the system must consider the tradeoffs between paying to support that system, or having it repaired, reformed, or replaced with something that isn’t as favorable.
All major reforms take place in a situation of mutual threat and coercion. Robber barons of the early twentieth century submitted to anti-trust and banking regulations in the 1930s as the price both of government support preventing the total economic collapse of the greatest fortunes, as well as suppression of armed revolt by a populace peppered with angry WWI veterans (although not without making their own attempt at an armed coup using those same veterans). Never underestimate the power of potentially violent mobs descending upon Washington and Wall Street. While the residents of these regions are inured to your ordinary litany of peaceful marchers and demonstrations (except when they seriously disrupt traffic), they do get nervous when such demonstrators outnumber police forces by more than fifty to one and wear uniforms proclaiming their experience and competence in application of brute force. Untrained peasant mobs rarely, if ever, successfully complete a process of revolt, but they can cause sufficient disruptions of business-as-usual to make it worth the efforts of Powers That Be to negotiate concessions (such agreements usually being abrogated at the earliest possible moment, of course). Veteran troops with good leadership, however, regularly overturn the governments of smaller nations, and have occasional success in larger ones. At the very least, they pose a tangible, realistic threat which can be used to extort more significant concessions, and a continuing pressure to maintain those concessions once agreed to. It is no accident that historically, the greatest period of labor participation in the wealth of this nation occurred immediately following the mass mobilization and demobilizations of WWII. The Donald Trumps and Dick Cheneys of the world don’t give charity; they respect power.
Solution 2: Reduce Spending
But of course, although the taxation power of the government is theoretically infinite, you can only squeeze the High And Mighty but so much before they get stubborn, and unlike the peasants, they can afford to hire mercenaries. So some reduction of spending is also a good idea. In order to reduce deleterious effects on an economy already reeling, such spending cuts should be in areas where government spending is inefficiently transferred into real money moving through the real population. Government highway projects, for instance, pay good wages in local communities throughout the country, so if they are cut in the interests of shifting resources towards alternative energy projects, that money should likewise be spread out in small local projects throughout the countryside. Money spent overseas might be a good target, especially money spent on things that are used once and then written off, like bombs and ammunition. Every time we fire a missile, we utterly destroy the equivalent of one sub-prime mortgage in value. At least with the sub-prime, you still have a house that somebody could live in. Wars are not only expensive; they are wasteful – unless, of course, you win, and make a profit off of the loot. Everyone knows that we invaded Iraq in order to secure the last major remaining oil supplies in the world for Exxon. But that hasn’t worked very well, and Exxon isn’t paying the investment costs. That’s one of the problems with war; it’s a high-risk gamble with other people’s money that encourages the players to keep doubling down on losing hands in the hopes that they will recoup their losses, or follow up the early gains that got them hooked. But it IS high-risk, and like any kind of gambling, if you could actually win, then it wouldn’t pay so well. Back when the Romans were at it, winning meant that you got to plunder all the local temples for gold, sell all the local inhabitants as slaves, and then collect taxes in perpetuity. But the terms of conquest just aren’t so favorable any more, what with the UN and a global economy watching. War is a bad investment. While it provides hundreds of thousands of good, high-paying jobs for strong young men with limited opportunities, we could spend the same money hiring them to do something useful, like maybe rebuilding the thousands of decaying bridges and schools around the country, or planting trees to mitigate atmospheric carbon, or building some really GOOD levees around New Orleans. And think of the oil costs we’d save in not having to shuttle them halfway around the world.
Solution 3: Inflate Currency
Now if these solutions sound familiar, it’s because, HELLO, they’re rather much what Franklin Roosevelt tried in the 1930’s, and together they initiated what became known as the New Deal era. And we all know that didn’t work, right (all right, WHO told you that)? In fact, we were taught in grade school that the only thing that ended the Great Depression was World War II, when the government decided to go into massive amounts of debt to fund the war, and that jump-started the economy. But that solution (deficit funding of perpetual wars) is what’s running down today, so let’s admit that MORE borrowing is off the table for now. That of course is what’s wrong with every "stimulus" package now being offered by politicians; they all pretty much assume that we will continue to print more money as needed, with the Federal Reserve magically entering the zeroes into large bank accounts as necessary to maintain "liquidity" and this can go on forever. Which is why everyone is resigned to the traditional (American) solution to American sovereign insolvency, which we all know by now was practiced assiduously by the Romans – debasement of currency. And we all know that that’s going to lead us to the Weimar solution of wheelbarrows full of cash, but perhaps we don’t all remember that the Weimar inflation was in fact a direct result of sovereign debt incurred by losing World War I. More precisely, the Germans were saddled under the Treaty of Vienna with the obligation to repay the war debts incurred by the English to the Americans, which was of course seen by the Germans as grossly unfair, so if they made those repayments in money that wasn’t worth the paper it was printed on, why not? And the cascade of worthless money from Germany fueled American inflation and debt during the 1920’s which collapsed resoundingly in 1929 ... while the Germans elected a dictator who promised to restore their international reputation and influence by extending the middle digit towards the rest of the civilized world ... which of course didn’t work out very well for them, either. All suggesting that what goes around comes around, that sovereign debt, like the hot potato, can be pushed around from one player to another, but when it finally comes due, everybody shares the pain. America has been inflating its currency steadily for sixty years, now, and everybody knew that it was just a matter of time before Peter and Paul got together, and now everybody is screwed. So while inflating our way out of the crisis seems obvious, and is certain to be attempted ... it might no longer be possible. There came a point where Roman currency, also, was laughed at, which is why Diocletian’s economic reforms required strict wage and price controls that basically commoditized the otherwise useless base coins.
Solution 4: Sell capital assets
At this point we come to the solution beloved of the International Monetary Fund, controlled by those same multinational corporations who created the subprime mortgage meltdown. The fire-sale of government assets has been the free-marketers’ solution to government debt for the past three decades. During the heyday of the Cold War, Communist ideology and nationalism in areas formerly colonized by European powers led to "nationalization" of a number of key common resources in various countries, most especially oil reserves in the Middle East, along with government construction of public works such as dams, power plants, and water supply systems. It is primarily these common goods, built with public moneys during the heyday of modern socialism, that corporations have sought to co-opt. But America went through its own period of "socialism" during the New Deal, and has numerous dams, water supply systems, and other public assets that could be sold for cash, not to mention the huge land reserves held by national parks and the military. Of course, successive Republican administrations have already made inroads on this process at every opportunity, which brings up the main problem that everybody should know by now: such sales are inevitably corrupt, with valuable resources being sold at cut-rate prices to inside players, while only the least desireable properties are ever offered at fair auction, usually accompanied by years of paperwork. Followers of the Russian privatization disaster are further aware of how such corrupt sales can then be renegotiated or invalidated when political power shifts again. The bottom line on capital sales is that except for minor reshufflings of property as needs and priorities change (lighthouses, for instance, being retired due to changes in navigational technology), they are about as profitable as selling an over-mortgaged house in California during today’s market, except to the vulture-buyer, while reneging on basic governmental commitments to maintain the common good. Management of public resources is what we have a government FOR -- if it’s not going to do that, and do it well, we might as well get rid of it.
Solution 5: Start a profitable business.
Gadzooks, we say. Government, go into business to make money? Isn’t that, well, ummm .... illegal or SOMETHING?
Actually, it’s not, or if it is, it’s only an American law, which means that Americans can change it if they want. Governments have historically managed any number of high-margin businesses, thus generating their expenses without direct taxation. The Byzantines invested in the first recorded agricultural espionage, stealing silkworms from China and setting up local silk production as a wholly-government-owned monopoly. Before them, the Egyptian Ptolemies maintained state monopolies on the production and trade of linen, olive oil, and papyrus; in fact, it was the Egyptian monopoly on papyrus that led an enterprising book collector in Turkey to invent parchment. Major banks, services,and industries are still owned and operated by the Chinese government, and not at a loss. Hugo Chavez finances his social programs and his foreign aid efforts by selling Venezuelan oil to Americans via Citgo. And of course, American states already use their monopoly on legal gambling to run the ubiquitous Lotteries.
No, there is nothing to prevent the U.S. government from participating in profitable enterprises EXCEPT our own violent antipathy to the idea, an antipathy primarily conceived and stoked by propaganda from our wealthy financiers, who have never favored competition from a mostly competent and honest bureacracy that doesn’t demand multi-million dollar bonuses. We could even start fairly small and simple. Say that, instead of selling federal assets outright at firesale prices, we started bidding leases for oil, gas, mineral, grazing, and timber rights at something RESEMBLING fair market value? Perish the thought, we’d unmake three-quarters of Western millionaires at one fell swoop – people like the Bushes and the Cheneys who have spent generations getting rich by milking the U.S. government like a cash cow. Couldn’t have that, could we?
Solution 6: Scapegoat and Confiscate
Until the French Revolution, a state did not generally default on debt. Partly, that is because until the French and American revolutions, "states" as we know them hardly existed. The State was generally controlled by a Monarch, and public debts were not debts of the State, but of the King. These kings, being real, live persons as well as legal entities, borrowed money both to pay their armies and to build fancy palaces or buy nice jewels for their crown – it was all the same, although then as now, armies tended to be more expensive than jewels, but people complained more about the jewelry.
It was hardly unusual for pre-modern kings – from Alexander to Charles I – to end up owning more money than they could pay back from their easily available resources. Kings tended to be "land-rich and cash-poor"; they had a steady income of rents, taxes, and profits on agriculture, as well as capital in the form of jewelry and weapons, but cash money disappeared into expenses as fast as it was generated because even two thousand years ago, the more money you had to spend, the more of it the military wanted. When in trouble, they could sell jewelry, or more often pledge it as collateral, but when they were REALLY in debt trouble, they had one tried and true way of dealing with irate bill-collectors: they could trump up some false charges and hang them. There were two variations on this theme. The first, used with success by Richard the Lion-Hearted against the Jews and Philip Le Bel against the Templars, was to accuse the bankers themselves of satanism, perversion, well-poisoning and baby-killing, execute or exile them, and confiscate all of their assets. When this was practiced on Jews, they got mostly hard cash, bills of credit, and jewelry; when used on the Templars in France or, in Britain, by Henry VIII on the Catholic Church, the majority of assets were in land and buildings. Those lands could be sold directly, or rented out, or offered as fiefdoms to loyal friends for an upfront cash payment, rather like New York "key money".
The second method is a little less direct, but can be used to knock down two political birds with one stone. That is, to go after a wealthy and inconvenient third party instead of the debt-holders themselves. Thus, Augustus Caesar made a little list of all his favorite political enemies, found them guilty of participation in the plot to kill Uncle Julius, and confiscated all their possessions while having them murdered for the Good of Rome. In modern context, one could charge Citibank and Merrill Lynch with fraudulent manipulation of the mortgage market, dissolve the corporations, and sell their assets to defray part of the National Debt. One of the problems, as we all know, with statutes regarding corporate malfeasance is that they are not tough enough to discourage outright appalling corporate behavior. By passing retroactive statutes against behavior that OUGHT to have been illegal, along with draconian penalties, we could quickly deter future misdeeds while recouping for the U.S. Treasury amounts having some relationship to the harm they have actually done to the public good. And although they would complain loudly, history shows that in fact such quick and brutal action is usually seen by the public as a sign of "strength" in leadership, while those political players not hit by the purges take heed and suddenly become model citizens.
Solution 7: Default – Just Do It
People declare bankruptcy all of the time and small nations not too uncommonly, but it’s amazing how Americans are taught that such action on the national level is completely unthinkable and would lead to unmitigated disaster. Of course, that could be because the majority of U.S. treasury debt is still held by wealthy and powerful persons and institutions making their homes in New York and California, many of whom have some control over what professional pundits are allowed to say or publish in their well-paid jobs of public thought-control. But at some point, the rat caught on a treadmill of ever-diminishing returns needs to take a good look at his situation and just stop running. Rats, of course, rarely have that much imagination, but humans can eventually be brought to reason. Declaring bankruptcy is not the end of the world. It’s merely the end of easy credit.
There are three ways to quit the credit treadmill. The one that is usually attempted first is a mere partial default – the government can declare a unilateral change of terms on some or all of its notes, say, that it will pay but reduce the interest, or promises to pay in the future, but just "not right now". This kind of temporization can be used by honest debtors in a temporary, transient crisis – "I have the money and fully intend to send my payment in, but the power got knocked out by a hurricane and the mails aren’t running, so it’s just going to be a week or two late this month". Or it can be used, chronically, by the overstrapped, until creditors become inured to the monthly call and the rent check rushed over by hand a week late, and borrowers to the incessant round of late-night calls from collection agents. Governments may declare a dozen debt re-finance packages over the course of a slow collapse, each offering creditors less of their contracted payments, with extensions on the debt covered by ever-more-onerous credit terms which insure the final dissolution of the entire structure. The IMF (run, coincidentally, primarily by international financiers based in the U.S.) has presided over numerous such fiascos, usually demanding that the debtor nation sell public assets to waiting vulture-investors at cut-rate prices, reduce spending on anything that could assist the nation in rebuilding its own economy, and raise taxes on workers while lowering them on foreign investors so as to allow outsiders to take over the country in all but name. Partial and re-financed defaults attempt to avoid the nasty medicine of lost prestige and power for national leaders, while wreaking havoc on the nation and opening it to a stream of ongoing international corruption. Bleeding to death slowly is merely longer and more painful than a sudden amputation; furthermore, with a quick amputation natural vasoconstriction and other shock responses can occasionally save the patient’s life.
The second form of default could be considered "default with excuse". This happens when the nation declares a "change of state" and essentially rejects its identity with the nation that undertook the debt in the first place. For that reason, it is generally the aftermath of a revolution or constitutional crisis. The constitutional crisis occurs because the government cannot pay its debts, and its efforts to do so (raising taxes, selling assets, treating or allowing foreigners to treat the population as slaves, etc.) incite enough citizens to the step of outright violence that the government itself becomes a casualty. A new government is then organized, which obviously feels no responsibility for the obligations of the pond-scum which they have just removed from office by firing squad. The French Republic was the first modern nation to make use of this technique, flatly refusing to pay the bills for Marie Antoinette’s palaces and jewelry. Others have followed, notably the current Federal Republic of Germany, which dumped Hitler’s debts along with his charred corpse, and most recently, the new Iraqi Republic, which has no intention of ever paying for anything bought by Saddam Hussain. Revolutions are messy and people get killed, but they do tend to make believers out of the bondholders, who generally give up on trying to collect much more readily after a violent coup than without one.
Finally, a country can – if it has the strength of common will and a readiness to behave with the rationality of your average working-class mom with two kids in daycare – just say no, and quit. It’s been done – the Argentinans, for instance, did it without a revolution, although of course there were elections before and after. The main result of a default, just like an ordinary bankruptcy, is that nobody is going to lend you any more money for quite a while. That becomes less of a problem, when you realize that for most nations caught in the grip of a debt crises – even, in fact, our own as of the mid 1990s – the main purpose of the continuing debt, has long since become PAYING THE INTEREST ON EXISTING DEBT. Just like a working family with the credit cards maxed out, continuing access to credit does not provide most governments with any more income than they would have had without it. It only acts as a leaky faucet continually siphoning off, through interest payments, money that has already been spent long ago.
The best alternative, of course, would have been not to get into the trap of deficit spending in the first place. One might forgive Franklin Roosevelt, who was arguably stuck in a very tight spot trying to fight a war from an economic dead halt (except for the fact that he had no need to fight that war at all, none of the Axis powers actually having designs on American territory). But American governments since then have followed the path of continual credit-card spenders, adding to a ballooning debt through refinancing after creative refinancing of a war machine that represents nothing more than a gambler’s attempt to recoup losses by placing ever-more-costly bets. This continual leeching of our national economy is the root of not only our current predicament, but every economic shock since 1972 (when Nixon formally acknowledged the failure of the Bretton Woods monetary accord). It’s long since time to do something about it, and history offers us a few more alternatives than the well-paid-off pundits are admitting.
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