Statutory Debt

By James Schaefer.

Corporations, sole proprietorships, unions, and government all share a common mandate to Grow the Franchise.

In the private sector this growth is constrained by the ability to make a profit—while laboring to provide goods or services that have value to others.  For them, the cost of money is real, and it has to be paid back either as interest to lenders or as dividends to shareholders.

Government lives in a different universe; it does not feel the pain from the cost of money; it simply passes the pain onto someone else.  If it is not willing to cut spending, it will use the other options it has available — tax, borrow, or print — to get additional money.

And because it uses these options, it lives in a debt-generating snowball.  Part of this comes from creating entitlements that become difficult to undo, because there is an expectation of future benefits.  Part comes from writing job contracts that are legally binding that will be expensive to breach.

There is no “dodging the bullet” for the taxpayer: taxing, borrowing, or printing all ultimately hit the taxpayer, some not yet born.  And we know government does not want to cut spending, because that will shrink its franchise.

The ability to change these benefits, services, or  government  jobs through future legislation is real enough.  But the expectation for continuation of those government services or benefits or employment functions as a legal obstacle to changing them.

So we end up with ever-expanding debt.  And the enormity of that future debt is obscured.

Just as a person’s “retirement portfolio” does not reflect the true future stream of cash flows during retirement — retirement earnings can be five to ten times greater than one’s actual retirement savings — so also the current size of government debt, $12.9 trillion, does not reflect the true burden on future taxpayers, an obligation estimated at over $100 trillion (see Free Enterprise Nation’s Hidden Cost of Government).

It will take a constitutional amendment, or perhaps several, to limit government.  We need to limit federal spending as a percent of GDP, we need a balanced budget amendment, and we need a “sunshine law” to shed light on the true scope of future funding obligations.

Two things we can pretty much bet on:  Government will not willingly shrink its franchise — i.e., cut spending — unless forced to do so; and it will readily obscure the truth about future costs of programs and services, in order to get current legislation passed.  Once passed, it becomes a statutory debt obligation on current and future taxpayers.

It becomes statutory debt.

However well-intended, if those programs and services are not affordable in the long term, then they are not affordable.

We cannot expect government to willingly shrink its franchise.  This mandate will have to come from the people.

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1 Comment
  1. Michael Smith says:

    Yes, and the more ingrained dependency becomes, the more likely it is that the mandate will come from a very specific group of people—the bond market investors who keep insolvent governments afloat. That’s who finally hit the brakes in Greece. No one else was willing to do it.

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