I think we could stop calling treasury bonds debt, we should especially reconsider the common phrase: “The National Debt”
Recently I attended my Grandpa’s 90th birthday party in Idaho. He’s in good health for a person of his age. He was glad to have us visit and many of my aunts, uncles, and cousins were able to get together and reconnect.
My grandpa and my oldest uncle like reading and reciting poetry. Everyone else encourages this habit. One poem my grandpa read for us is titled: “The Cremation of Sam McGee”
Before reading further, I would encourage you to do a websearch and read that poem. It’s a great poem and a perfect introduction to this discussion for several reasons.
“Sam McGee” is set in Canada during a “Gold Rush”. The narrator tells a tale of his companion and fellow gold prospector named Sam McGee.
Sam was drawn away from his home in Tenessee in pursuit of gold, but he loathed every minute of it. Most of all he hated the cold. Somehow the prospect of gold led him to forsake the comforts of home and everything else he held dear.
Marx, among others, drew attention to the economic difference between use value and exchange value. “Use value” is value that has relevance to you personally. You can eat food or wear a coat. But gold is alluring for entirely different reasons. It is a symbol. It is shiny. It is unique, mysterious, and full of contradictions. It lasts forever. It does not rust or corrode. It is solid but maleable. It can be shaped into thin sheets and narrow threads, or melted into solid bars.
Gold certainly has maximum exchange value and minimal personal use value. “You can’t eat gold.” But I don’t think “exchange value” completely describes Gold’s spell over humans. We are compelled to pursue something immortal, solid, clean, and beautiful, that can take on infinite forms and will outlive all the humans who work it into different forms after their own image.
Gold represents things that humans wish they were but aren’t. We are smelly, short-lived(most of us at least), and dirty. We make promises but readily contradict them in a new situation. We are in constant cycles of change. We need constant renewal, nourishment and affirmation.
Sam McGee helps start our discussion by highlighting, although indirectly, the complex relationship between humans and Gold. Aspects of this relationship can be generalized to the relationship between humans and all forms of capital. Pursuing exchange value over use value leads to alienation, such as freezing to death in the arctic.
Ultimately, what we need to look at is not the relationships between humans and capital, but relationships between humans and other humans.
Financial commitments between humans take the form of debt. The word debt can be used to label any obligation or commitment. But debt also connotes moral judgement or inescapable consequences.
Humans, right? We look at the world and see everything outside of ourselves. Often we fail to consider the one thing that is part of every scene we see, but never directly visible: ourselves. We talk about resources and money and environment and government and taxes and nations and machines and banks and bombs and bullets. We talk about roads and schools and borders and internets. We talk about ideology and economy. But how often do we look directly at the human?
Taking an anthropology class and reading Graeber’s Debt has changed the way I think about money. I don’t have all the answers but I feel I’m finally looking in the right place.
With debt, the inescapable consequences are imposed by humans, and the moral judgements which justify inflicting consequences are imposed by humans as well. Often these mechanisms are structured to try to make humans something they are not. It’s social alchemy. If we can create the right set of rules humans will be good and harminious, we will end conflict both external and internal.
But that doesn’t work, humans are full of contradiction and conflict. We’re ephemeral and transient. We’re dirt and dirty and short lived. We’re cold, soft, clay, chasing cold, soft, metal.
Debt is nothing unless it is enforced, either by imposing obligations on someone or personally undertaking the commitment to fulfill an obligation. The narrator in the “The Cremation of Sam McGee” was all alone in the arctic, dragging his buddy’s corpse along, risking exposure and starvation himself. Somehow an idle fantasy of a dying man longing for warmth became an inescapable mandate: “A pal’s last need is a thing to heed. I swore I would not fail”
I am not advocating we abandon all commitments and desert what little social organization we have. I want us to be more conscienscious about what these commitments mean to us. I want to see us fulfill them cognizantly, not merely out of tradition or lack of imagination.
We can choose to call treasury bonds debt, and I think that is an honorable thing. If I had a buddy express his last wishes to me I would try to honor them, but I would defer his request to the needs of preserving my own life.
How far will this debt take us? What are the inescapable consequences involved? What moral judgements are justified or not?
Selling off public assets to private entities is a terrible idea. That should not EVER be on the table.
I think treasury bonds should be credits against future tax debts and nothing else. We should not exchange them for gold or political influence.
I’ve certainly made many poorly constructed statements in personal conversations and on social media about these issues. I keep talking about it because I’m not satisfied with what I’m saying. These are challenging issues and I want to understand them accurately and be able to explain them succinctly.
So much of what I have said about government finance has had inaccuracies if not outright misrepresentations. In an effort to correct this, here are the best statements I can make without reservation:
- Treasury bonds are a debt because we call them a debt.
- Treasury bond debt is finite, but future tax income potential is infinite. The government is solvent so long as it maintains political authority over resources. This authority takes the form of authority to collect taxes and legal/regulatory authority.
- The real value of the treasury bond debt is flexible, based on future changes in dollar value. U.S. dollars are a credit against tax debts. Treasury bonds are a dollar denominated asset issued by the U.S. government and as such should be considered equivalent to dollars. Bond holders are betting on stable dollar value and continued government authority over resources, which means the bonds will have use as a credit against future tax obligations.
- A stable dollar value best serves the needs of the public, by providing a predictable and fair unit for measuring financial commitments, including wages, rents, consumer prices, debts, savings, business contracts, and more.
- Government defecits are affected by all flows of its currency, and all economic activity. It’s not enough to only look at tax rates and spending levels. Because most economic activity involves some form of taxes, all parts of the economic system affect federal government budgetary balance.
- When the federal government spends money, that money circulates through the economy being spent repeatedly until it is either saved or collected as taxes. It could be lost, but that rarely happens.
- Like in a casino, currency circulating in a domestic economy has a tendency to end up with the house, in this case the federal government. The specific rate of taxes is less important than the power to tax a percentage of many different forms of economic activity.
- The amount of outstanding treasury bonds is the amount of government-issued dollar-denominated assets spent by federal government that haven’t yet been redeemed for the purpose of paying off tax obligations. Public debt is the private sector’s savings account against future taxes.
- Government efforts work best in areas that are political in nature. These activities can be unpredictable or challenging because of the complex differeing interests affected by the activity. Government is not sometimes wasteful or ineffective because it is inherently bad, only because it is the tool best suited for engaging challenging political issues. Just because it is easier to abandon challenging public efforts does not mean that is a more effective approach.
- Public efforts are inherently challenging. It is not enough to merely have good ideas or good intentions. We need policies that have effective technical design and a public who understands, supports, and participates.
- When public efforts prove ineffective, standing back and deferring action to individuals and communities can lead to both temporary and long term solutions. It may even help lead to better legislative solutions or compromises. Federal government works best when it tries to standardize effective policies, while invidiuals and communities can more nimbly experiment with policy innovations.
- The public defines property rights. If we are forced to compete for capital even when there is no real scarcity, it is often because private property rights are prioritized over public access. I like a generous social safety net.
- Socialism is about sharing both the work and the rewards. It’s not redistributive or theft, it’s allocating and sharing, public participation.
- Without property rights subject to public rules like taxation and regulation you only have property claims which are contested through all manner of conflicts up to and including nuclear war and planetary decimation. Taxes aren’t stealing, though they may be characterized as obligatory participation in society’s governance.
- I don’t like outstanding treasury bond obligations that exceed annual GDP, even though hard limits on treasury debt are a TERRIBLE idea. Treasury bonds exceeding one year of GDP is much more than what people need for healthy personal savings. This is in fact a reflection of wealth inequality. We can reduce these outstanding liabilities by addressing wealth inequality, especially through progressive tax and income measures(small universal income or negative income tax) and a generous social safety net which reduces the need to hoard currency and compete for resources.
- Progressive policy can address excessive treasury liabilities long term by improving people’s mutual trust, cooperation, reducing wealth inequality, and inducing mutually beneficial financial and economic behaviors.
- There is no inherent reason why excessive treasury bonds outstanding automatically hurts the government’s financial position, though it does increase vulnerability to future inflation threats. However, effective resource development/management/conservation, scalable productive infrastructure, and appropriate and effective government objectives are much more important factors affecting inflation potential.
- Large amounts of outstanding treasury bonds can be related to a climate of limited private investment opportunities or a saturated or redundant private marketplace. This tends to creates low interest rates which keeps bond interest payments low. So long as taxation authority is intact and public spending efforts are effective, large amounts of outstanding treasury bonds do not necessarily call for reduced spending but could call for resolution of public issues inhibiting domestic economies or social spending measures to improve currency flows.
- Large amounts of treasury bonds outstanding definitely call for a careful examination of our taxation structure, property rights and safety net, wealth inequality, public spending efforts, and legal and regulatory framework which all affect economic and financial activities.
- Supply side solutions like reducing taxes or regulations tend to help individuals who are already successful first.
- Certain supply side measures can help people from the bottom up, but only if there is sufficient economic demand AND purchasing power or you facilitate individuals fulfilling their own needs at a local level.
- Making access to basic resources contingent on the ability to achieve competitive productivity and sales during the most productive and propserous era of history is ineffective and leads to unnecessary deprivation and potentially starvation.
- Lack of access tends to cause, more than it is caused by, moral deprivation. Moral deprivation, if relevant at all, starts from the top-down through bad policy and must be fixed from the bottom up by an informed public. Often, the problem is not moral at all, but rather a technical problem of creating effective policy.
Now finally for the one statement I have been trying to make repeatedly, but I can’t make this statement without reservations:
- Should we call treasury bonds debt?
It is up to us what the financial liabilities of the treasury department represent and whether we allow them to inhibit our public efforts or whether they motivate us to solve public policy issues and work together.
I don’t think of treasury bonds as government debt, merely a pool of savings against future tax debts which government honors. They’re like a tax gift card. Gift cards could technically be called debt, but that’s not their primary purpose. People buy treasury bonds when they’ve earned government spent money, but don’t want to spend or invest it.
The obligations that support dollar value are intrinsic parts of our democratic governmental system. Unlike private sector obligations, the obligations aren’t created when an asset is issued, as with stocks or a mortgage. Government’s obligation to the public and the public’s obligations to government are there regardless of who holds what government issued assets.
The government has an obligation to represent and serve the public. That is the real debt of the government. The public has an obligation to participate in the democratic process, hold our representatives accountable, obey and support the law, and pay taxes. If any thing is to be called the national debt it should be this collection of mutual obligations, expectations, and commitments. The quantity of outstanding government issued points is less important.
“A promise made is a debt unpaid”
Let’s honor our commitments, but not get sucked into misinformed debt histeria. We don’t want to freeze to death chasing gold in the arctic, or other similarly bad ideas.