Wednesday, October 23, 2013

Ignorance Is Not Bliss

Hat tip to Terry Headley for passing this gem along from the director of the AFL-CIO's  West Virginia Center for Budget and Policy:

Ted Boettner @WVpolicywonk
It's amazing how many people say America is "broke" and have little clue that since we issue our own currency that we can't go broke.

Ted needs to go back to the drawing board on his economic thinking.  History is chock full of examples of states that have deluded themselves in this way.  Thinking that one can simply print money to pay bills assumes way too much.

Paper currency based upon "full faith and credit" of the government relies on the understanding that the state will work to maintain its artificial value.  It assumes that people will use it in place of commodities that have tangible value.

Some states have abused the trust and faith of the people in their money and government by printing money to pay its bills.  This produces the classical definition of inflation, which is "too many dollars chasing too few goods."

Liberals like a moderate amount of inflation because it redistributes wealth from creditors to debtors.  If debt is repaied at fixed amounts with a fixed interest rate, its real value will fall during periods of inflation.  The debtor has to pay back less value than he or she originally borrowed.  This will harm an economy in the long run because lenders will adjust their policies to protect themselves against this kind of loss.

Taking Boettner's idea to its logical end produces disaster.  The Confederate States, Weimar Germany, and countless Latin American countries fell to this temptation.  Weimar Germany obtained loans from the United States to shore up its system after the world saw the spectacle of people wheelbarrowing in bills to pay for bread.  Those in the Confederacy relied on barter toward the end of the Civil War because the central government simply printed to pay.

There is no easy way out of paying debt, even for nations.  To think otherwise is either delusion or ignorance.

That being said, America does not need to be broke.  If federal and state regulators pare down burdens to those which are necessary.  If the federal government gets out of the way of energy production.  If Obamacare is reformed and put on a free market basis.  If, if, if the competitive free market can be restored, then the United States can prosper and pay its bills.  We have wealth locked not in our power to print money, but in our resources and potential production.

Unleash it, pay off the debt, secure the future.

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