A Debt Crises

A blog which I read often – Futile Democracy – posted that there wasn’t a government debt crisis.

Here is my response:

Whereas you are perfectly correct in your understanding that a “personal” debt of a real person is very different from “government” debt of an abstraction, you are very incorrect and misunderstand to why government debt is, in fact, a crisis.

When government spends money, it must spend money and wealth created by other people. It does not create wealth on its own, it takes wealth made by those “over here” and gives it to “others over there”.

Thus, government debt absorbs money and capital that would be otherwise used by the market to create jobs and wealth and applies that taken loot to spend on political purposes that by definition are not economical.

In other words, government use of money destroys economic purpose in favor of political purpose.

An increase in government spending and debt means an increase in economic destruction to favor political construction.

If the problem you are addressing is economical, then INCREASING political construction is contradictory.

By actions of political DE-construction (lowering of debt and lowering of government spending) will reverse economic destruction.

When governments take money from the citizens and spend it to rescue the jobs of one set of workers — union political supporters, in this case — what does that do to the demand for the jobs of other workers, whose products citizens would have bought with the money you took away from them?

There is no net economic gain to the country from this, though there may well be political gains for the administration from having rescued their unions supporters.

If the national debt continues to grow, a growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that ‘crowding out’ of investment would lead to lower output and incomes than would otherwise occur.

You are always faced with this choice.

Either the goods and services of the market place are distributed by voluntary trade Or by the point of a gun.

The more you support the “gun” of government, the less the market place will provide in terms of goods and services. A quick review of Soviet Union, Communist China and North Korea demonstrates this truth.

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9 Responses to “A Debt Crises”

  1. Mark Tokarski Says:

    Governments develop infrastructure to promote commerce. Roads and the Internet (and in teh past, telegraph) are perfect examples of government using tax money to expand the economy.

    Governments provide basic services so that business don’t have to worry about having educated work forces. In most developed countries, government administers the health care system, to eliminate that headache for businesses. Works great.

    Funny thing. We were just in Cooke City, Montana, an impoverished tourist town on an isolated highway in Montana. It is known for bad good and high prices, stinky snowmobiles in winter, lack of restrooms and lots and lots of cheap Chinese bears and moose.

    They instituted a 4% sales tax some time back, and on our last trip there, they had built a new visitors’ center with clean restrooms and area information along with local advertising. They had cleaned up the garbage dump that was attracting bears, leading to their demise.

    Yeah yeah yeah – private business could do all of this themselves.

    But they don’t. Cooke City never got any of that stuff done in the fifty years I had been going there until they passed a tax.

    I disagree with you on this point, as always.

    • Black Flag Says:

      Mark,

      Governments develop infrastructure to promote commerce.

      It is not a question that poorly invested monies may leave behind some building or concrete path in its wake – it is that it is mal-invested at a time where mal-investments are being and should be voided and avoided.

      When capital is very scarce, it is foolish to trap it where it cannot be reused as fast as possible.

      The Market Place will determine what infrastructure it requires all by itself.

      Your attempt at central planning what the Market may need will ensure you that you place resources in the wrong place.

      How do you know the Market needs roads, instead of – say – rail? Or airports instead of rail? or ports instead of airports? or electricity “here “but really needed “there”?

      You’ve assumend that any infrastructure must be a good build – yet you have posted about roads that travel to nowhere!.

      Leave the market place alone. It will demand what it needs, and -its amazing trait- will supply it to itself!

      Roads and the Internet (and in teh past, telegraph) are perfect examples of government using tax money to expand the economy.

      The telegraph was private enterprise. Later it was given a government monopoly, but it was always a private enterprise.

      The Internet was not invented by government, nor did government “make it” what we now know it to be. All of that was private creation. The internet was seized by the government as a tool for its own evil purpose – like the airplane, the internet was created by free people, and the government turned it into a weapon.

      Even the highways exhibit the same bastardization. The “government” roads were not created for you. They were built to enable massive troop movements from one part of the country to another part of the country as determined by the government.

      Governments provide basic services so that business don’t have to worry about having educated work forces.

      The argument for government as a tool for business is evil.

      To enact an evil so that one need not worry about a mere economic issue is equally evil.

      In most developed countries, government administers the health care system, to eliminate that headache for businesses. Works great.

      Using evil to avoid a responsibility is evil.

      As with most who misunderstand economics, you are trapped by the time displacement of cause and effect of economic law.

      Health care in every nation which carries some sort of Socialized version will fail.

      You cannot provide an economic good at an artificially lowered price without that economic good being consumed to exhaustion. This is an economic law.

      Because you benefit today because the consequence has been displaced into the future merely demonstrates that you have little or no understand of economic cause and effect OR, worse, you are an evil man who would rather take a benefit while laboring your children with the consequences.

      Fortunately, I do not see you as an evil man – so you are merely economically ignorant 🙂

      Yeah yeah yeah – private business could do all of this themselves.

      Yeah, yeah – they could, but didn’t – as you noted…..because of the problems related to lack of ownership and the evils of community property.

      IF the road was privately owned – it would be maintained and cleaned, because that is what attracts customers.

      IF the park was privately owned – it would be as clean as Disneyland.

      etc. etc.

      So you complain about the consequences of communal property – no one owns it, so no own cares – as an argument to create more of it

      I disagree with you on this point, as always.

      Which is why I enjoy your posts and blog. It is the rock that sharpens the edge of the sword.

  2. csm Says:

    Hi BF, good article. If you haven’t seen this – you might find it interesting

    http://www.newswithviews.com/Vieira/edwin206.htm

    Also ran across an interesting article about education by your Dr. North.

    Hope all is well for your and yours c

  3. Mark T Says:

    As always, it’s a black hole, Mr. Flag. Just a few comments:

    The Internet, as we know it now, was built upon by private enterprise to great success, but it is still not a good engine for profit, as people re inclined to share things for free via this network. That is as much a facet of your marketplace as is the exchange of money for services.

    The Internet was developed at government expense without the prospect of profit. They needed a back-channel means of communication in the nuke scenario. I believe that the first use was by Kissinger. Later it was turned over the the Universities for use, and then in a back room deal, without public input, turned over to private corroborations. Verizon and Google are now in talks to use the principle of “exclusion” to rope in the Internet as a profit center, thereby destroy your and my access.

    The notion that the market automatically satisfies all needs is wrong because investors usually do not think long term. They might invest in roads as a short term device to generate profit, and then rely on the principle of exclusion to generate profits. But public roads free for all to use are much better for commerce.

    And finally, the market does not always serve us well, and when it does not, we only need regulate it to suit us, and it continues to work fine in the new environment.

    • Black Flag Says:

      The Internet, as we know it now, was built upon by private enterprise to great success, but it is still not a good engine for profit, as people re inclined to share things for free via this network. That is as much a facet of your marketplace as is the exchange of money for services.

      The fax machine was invented in 1842 by Alexander Bain.

      It was not a commercial success for another 120 years …. why, Mark?

      Answer: Because the Market Place had no use for “instant documentation” at that time.

      By your logic, it should have been seized by the government and turned into a weapon for the Market place to see “the error of its ways”.

      Fiber optic technology was invented by ….. Alexander Graham Bell. It was not a commercial success for another 120 years …. why, Mark?

      Answer: Because the Market Place had no use for “telephone call capacity” at that time.

      By your logic, it should have been seized by the government and turned into a weapon for the Market place to see “the error of its ways”.

      The internet as a means of global communication was unnecessary for the global community until the technologies of the web were also introduced.

      The Internet was developed at government expense without the prospect of profit. They needed a back-channel means of communication in the nuke scenario.

      Exactly, Mark. The government seized it and turned into a weapon. For some reason, you think that is a good thing.

      The notion that the market automatically satisfies all needs is wrong because investors usually do not think long term.

      Absolutely they think for the long term, short term and mid-term.

      There is not one class of investors. There are those who invest in long term projects as well as those that chose different time-term projects.

      The market place offers all sorts of different deals – billions of them every month for an investor to chose.

      They might invest in roads as a short term device to generate profit, and then rely on the principle of exclusion to generate profits. But public roads free for all to use are much better for commerce.

      Your economic view is myopic.

      You believe that investors only invest for profit – but that is a Marxist view.

      Investors actually invest for a billion different reasons that are based on human subjective values.

      Some invest their funds to protect their wealth and thus forgo profit.

      Some invest their funds to grow their wealth and thus forgo protection.

      Some invest their funds with a mix of growth and protection in a huge, incalculably, variation of both.

      And the marketplace provides all avenues for such investments.

      You do not see such investments because you simply do not look for them.

      Fleets of merchant ships takes decades to build. Yet, they float the oceans in numbers greater then government navies.

      Fleets of aircraft fly the skies yet takes decades to build and develop.
      Example, the 787 was conceived in the late 1990’s to replace the 747. It is still under development for air shipping with that version expected to be under production in 2015. This is a multi-decade investment of billions of dollars.

      Yet you deny such things occur in the market place.

      And finally, the market does not always serve us well, and when it does not, we only need regulate it to suit us, and it continues to work fine in the new environment.

      The market place serves society optimally. That also means there exists no voluntary solution to a human problem yet.

      You are impatient. You want your problem solved right now and thus, are willing to beat the hell out of someone to accomplish it.

      • Mark Tokarski Says:

        Can’t deal with you when you are in Blitzkrieg mode!

        Look into the history of the telegraph and you will find subsidy. I didn’t just toss that in.

        Technology does not just arrive on the doorstep when we are ready for it. It is advanced by research, and most research goes nowhere. For that reason, most basic research is done by government,often under the guise of defense spending. When they hit on something that works, as they did with Internet technology, they turn it over to the private sector to advance commerce. Since we do not perceive ourselves as operating in that mode, most of this is news to the average person.

        Your notion that technology arrives when we are ready for it is odd … you really perceive that the Internet would be here now without the baseline research done back in the 60’s and 70’s? ‘That it would have just ‘arrived’?

        You are right that I speak too generally about investors. Entrepreneurs tend to take risks but have less to lose than those who already have money. The latter tend to be protective of their wealth, and so eschew risk. But there are as many ideas as there are investors, and investment is a good thing. Investors are not God, they don’t know the future, they don’t look to improve our general well-being. They just want to make money. The invisible hand is a crock.

        But it’s not a bad system, with government doing cutting-edge research, providing infrastructure and all. It allows private investors to make things better. The Internet is a good example – crude technology when handed over to AOL et al, and now an incredible engine.

        • Black Flag Says:

          Mark,

          Can’t deal with you when you are in Blitzkrieg mode!

          Take one argument at a time – that will help!

          Look into the history of the telegraph and you will find subsidy. I didn’t just toss that in.

          I did not disagree – it was a political way to prevent California from “drifting” from the Union in 1850 as it was the first non-contiguous State.

          But that does not invalidate my point – the market place made it viable … or not .

          Telegraph was not invented by government, nor for government, nor was its uptake due to government nor its demise due to government.

          Because government may use it for its own nefarious purposes does not change this.

          Technology does not just arrive on the doorstep when we are ready for it. It is advanced by research, and most research goes nowhere. For that reason, most basic research is done by government,often under the guise of defense spending.

          The development and research of new goods/services by the market dwarfs any government “research”.

          It is irrelevant whether research “goes nowhere”.

          Government research exists for its own reasons – development of new weapons, etc.

          Government has no place to provide any research on behalf of the marketplace. The market answers its own problems all by itself.

          Using government to steal money from the market to “research” what the market does not need does not benefit the market.

          When they hit on something that works, as they did with Internet technology, they turn it over to the private sector to advance commerce.

          (1) The did not make the “internet” work.
          (2) They did not know how the market would use it.
          (3) They were going to disassemble it, and because it was abandoned, the “market” took it and made it the Internet you now know. Government did nothing.

          Your notion that technology arrives when we are ready for it is odd … you really perceive that the Internet would be here now without the baseline research done back in the 60’s and 70’s? ‘That it would have just ‘arrived’?

          The Internet “as you know it” exists because of a confluence of a number of technologies.

          It was wholly unnecessary in the 1970’s because Personal Computing was an irrelevant force then.

          Without Microsoft, Intel, IBM et al providing ample, cheap, computer power, the Internet was pointless for the market place

          You seem to believe that the Internet is an individual technology that needed government to exist when, in fact, it is a consequence of massive and pervasive computer power of the masses.

          The Internet “is” – not because of government even in the most minor case. It is because of market demand.

          The “Internet” as you know it was first formed by online Bulletin Board services like Compuserve. When the government abandoned the “Internet” – at the cusp of the Personal Computer Revolution, these services took over as a means to provide a further development of their already popular service.

          CompuServe was founded in 1969 as Compu-Serv Network, Inc. in Columbus, Ohio, as a subsidiary of Golden United Life Insurance.

          This service far out-founded any concept of “government” DARPA stuff as a means of interconnecting mass public resources.

          If the Personal Computer Revolution did not occur, DARPA’s “pet” would have ended without a whimper. Thus, it’s existence was NOT a catalyst, but an accident of opportunity that the market place created for itself

          Investors are not God, they don’t know the future, they don’t look to improve our general well-being. They just want to make money. The invisible hand is a crock.

          Boy, I wish you’d carry that attitude to its conclusion.

          If people who use their own money at risk cannot predict the future….

          then people who spend the theft of other people’s money cannot be better at it – and are worse!

          An Entrepreneur is a man who – based on his understanding of the market place – creates predictions of its needs for services and goods and uses his own money to bet with to provide those goods to earn a profit.

  4. Bottom Line Says:

    http://futiledemocracy.wordpress.com/2010/08/05/i-hate-to-say-i-told-you-so-but/#comment-2203

    Lol.

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