National debt looms large

Had breakfast with Doug of the Woeful Countenance, a friend of mine from the old "cannon-business" days, who for all his pessimism still cares about what's wrong with the country.  In the midst of my discussing developments in the freedom movement and with the RTF website, he climbs on his soapbox to admonish me about the national debt.

Or "National Debt," or simply "The Debt," if one prefers the emphasis of a proper noun.

"It's BIG!  What are we going to do?"

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For nearly 150 years from the beginning of the US government's use of annual budgets, the government except in years of war or crisis balanced its budgets, or received in revenue what it spent on its functions.  Keep in mind until the early decades of the 20^th century government spending as a percentage of national wealth was practically negligible.

After some Internet scouring, I was able to get an estimate of gross domestic product for the early part of the 20th century—GDP was not measured before 1947 and certain extrapolation methods have been used by scholars to estimate the total value of goods and services produced by the US economy before that year.  I combined that estimate with some published figures for government spending and total debt.(1)

Arriving at the following table:

In 100 years, [Federal] government spending has grown from approximately 1% of real wealth in 1901 to approximately 20% of real wealth in 2002.  [This is only using Federal Government spending and debt levels in this example, which is being kind.  The true portion of US GDP collected in taxes is 48% to 52%.  I'm currently unaware of a source for the complete debt level across all government entities in the US.  Ed.]

The 1901 ratio of accumulated national debt to annual spending is actually 4 to 1, while the 2002 ratio of accumulated national debt to annual spending is 3 to 1.  Thus, size of debt relative to government spending does not appear, by itself, to be cause for alarm.  (By analogy, you're paying the mortgage on your house while gainfully employed in a secure job.)

What does present a special problem is illustrated in the following statistical kicker:

In 1901 the wealth of the United States compared to the national debt is ~25 to 1—it may have been even greater: the $50 billion represents a conservatively low extrapolation—, while in 2002 the wealth of the United States compared to the national debt is less than 2 to 1.  Whoa!  (The analogy here is you've run up $100,000 in gambling expenses on your Visa card and have been laid off from your part-time job at McDonald's.)

Since every dollar the government takes/spends/borrows is a dollar taken from a citizen or business, i.e. taken from real-wealth generating activity, one may reasonably speculate that current GDP would be considerably higher had government spending throughout the 20^th century continued at 1% of American wealth.

Masking our understanding is inflation:

Let's assume a modest real growth in US ~GDP of 3% annually—during the Industrial Revolution in the US the values are close to 4% real growth—then $50 billion in 1901 over 100 years becomes $50 (x 10⁶) x 1.03¹⁰⁰ = 50 (x 10⁶) x 19.2 = $960 billion.  If we plug that number into an inflation calculator, the value for GDP today would be $19,925 billion.

Roughly $20 trillion potential in current dollars vs. $10 trillion actual in current dollars!

Thus, by conservative estimates of wealth growth—using the assumption government activity does not negatively impinge any more than it did 100 years ago—we would be at least twice as well off today as we are.  Plus, more important, we'd have our freedom, too.

"And if my aunt had whiskers, she'd have been my uncle."

I wanted to show the increase in government per se because it directly leads to government deficits.  Back to The Debt:  In particular, starting in the 1930s with FDR's New Deal, followed by the Big War, and culminating in several decades of Keynesian make-believe, excess government spending has been a sacred calling of our Cratican political leaders.

It would be wrong to pin the entire problem on the current administration.  But we must point out Bush-Cheney are taking the debt stratospheric, especially with the war in Iraq.  Bush-Cheney will have added nearly $2 trillion to the debt by the end of their reign.  "Put the pedal to the metal, stick a penny in the fusebox, and go for it, baby!"

The Debt and Big Government represent the ruling class' pet 900-pound gorilla it's been keeping in the closet, and quietly passing bananas to, for decades.  But Bush-Cheney want to ignore the gorilla completely, "No bananas for you!"  Remember Cheney's statement to former Treasury Secretary Paul O'Neill, "Nobody cares about deficits anymore."

The difference between The Debt and a large personal Visa bill is with your Visa bill you pay it off with your own money.  The government also pays off The Debt with your own money, but once removed… by force.  Anyway, a 900-pound gorilla without bananas is going to be pissed.

The moralistic libertarian solution: repudiation.  Holders of government securities are dealing in stolen property and have no reason to expect repayment.  Take a swath through the Gordian Knot.  But because we're so intertwined—the debt is owned by countless individuals, businesses, other entities—repudiation would cut too much living tissue.

The practical libertarian solution, in fact, the only solution: Downsize the state damned quick.  The Debt's enormity gives immediacy to selling all legitimate functionality the feds have usurped—e.g. education, transportation, welfare services—to private enterprise and eliminating all illegitimate functionality—e.g. the war on drugs, coercive taxation—entirely.

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So, my good friend Doug, here's what we can do:

In a previous column we saw that ending the war on drugs returns a minimum of $500 billion annually to the American economy, which will make a substantial down-payment.  The feds also own a heap o' land 'n' roads 'n' stuff that can be sold, perhaps worth a cool trillion.

[To address the wealth-creation issue, consider one revolutionary concept: agricultural freedom.  Particularly—this simply has to be stated because it's so blatantly obvious—, legalizing agricultural or industrial hemp leads to unparalleled riches, conservatively in the range of hundreds of billions of dollars, spread among millions of average Americans, especially, initially, farmers.

(The primary reason the hemp industry can become so large, even into the trillions-of-dollars range, is the potential for refined-hemp biomass to replace fossil fuels.)(2)  Hemp is the only industry that if allowed to flourish can single-handedly wrestle the 900-pound gorilla to the ground.]

Unfortunately, hardly anyone in the popular media is discussing practical new ideas such as the above.  Many people tend to resist what sounds like radical change.  But when it comes to The Debt, what's more radical: national bankruptcy or national freedom?  As American citizens, it's our decision.  And our time is running out.