Not too long ago I came across an interview with Nobel Laureate in Economics, Paul Krugman. In this interview, referring to the size of the national debt, he said the size of the debt didn’t matter because we “owe it to ourselves”.
We do? I first thought that maybe Krugman was suggesting that we were a socialist society or perhaps he was advocating that we should become one. But not even a Keynesian as Paul Krugman could be gullible enough to believe in the failures of socialism. Well, at least I don’t think so. Let’s look at this idea a little closer.
In 1970 The Foundation for Economic Education, Inc. had published a collection of works in a book titled, “Clichés of Socialism”. This is a must primer for any libertarian or conservative that debates, discusses or even blogs about our body politic and the state of our economy. This very concept was covered quite well in the book. I’ll give you the McKeown translation.
Imagine you had $100 in your right pocket and transferred that money to your left pocket along with the promise to pay your right pocket back. You wouldn’t be any richer or poorer for the transaction. There’s no point in borrowing from oneself. But, if you did, the size of the debt wouldn’t matter. Now, if you were to give that $100 to your friend then we cannot say that both of you are as rich and as poor as before. He is up $100 and you are left with a promise to repay and $100 less off. Or if your friend buys on credit we cannot say his creditors believe your friend “owes it to himself”. They know exactly that the size of his debt makes a world of difference when the bill comes due.
Now, imagine a society where the government owns and controls all property and people and issues bonds as a book keeping device to keep track of its spending. It wouldn’t matter how many bonds were issued or remained outstanding. Since no one owned any property or individual rights this socialized government would only be dealing with itself. The government would be transferring its $100 from its right pocket to its left pocket. But in a nonsocialized society persons do have rights and own property. The government that borrows from A must repay A and not B, C or D. The borrowed money is in the form of a government bond and all parties involved care very much about the size of the debt and the taxes collected to pay back the bond. Whether the citizen is a bond holder or not, the size of the debt does matter as all are payers of taxes.
In a society where property is privately owned, it is important to everyone whether they owe or own something. Wealth resides in ownership and not in indebtedness.
This relationship between property owners and government determines the limit to government power. Governments of socialized societies own and control everyone and everything. Private property owners are supposed to have something to say as to how much of their property is taxed or seized. If they didn’t then it wouldn’t be a limited government and private property ownership would be nonexistent. Here again is where Krugman misses the boat. The government’s debt signifies how much of a claim it makes against private property owners. The more this limited government remains within the confines of its delegated powers, the more ownership of property remains with individuals. When the government breaks out of these confines then it finds it harder to find “owners” to “borrow” from and no taxpayers to seize money from when the debt comes due. So, understandably, the government’s debt is an existing claim against property, like a lean placed against a home or business for unpaid taxes. The larger the debt, the less equity individuals have in real private property. When this occurs then socialism has already begun and the government does “owe it to itself” because it already owns the property. So, the size of the debt does matter to owners and taxpayers. The debt measures just how much citizens owe to the government and not to themselves. At the time of this printing the individual public debt for every man, woman and child in the United States was about $44,000.00.
So, Mr. Krugman, it does matter how big the debt is. For it is the size of the debt that determines just how much personal freedom and with it, private property the people can enjoy.
Later I will explain how Keynesians, like Paul Krugman, argue that the central bank’s ability to “print” money eliminates this private property and taxpayer dilemma when it comes to the national debt. That is a fight for another day.