From: ipser@solomon.technet.sg (Ed Ipser)
Subject: Re: Confronting the Deficit/Debt Boogyman
Organization: TECHNET, Singapore
Date: Tue, 7 Apr 1992 05:20:44 GMT

In article <8849@alvin.mcnc.org> ekp@mcnc.org (Edward Pavelchek) writes:
>In article <1992Apr4.054726.265@nuscc.nus.sg> ipser@solomon.technet.sg (Ed Ipser) writes:
>>In other words, the government may have the power to destroy the net
>>assets of the country but it does not follow that it has the power to
>>confiscate them in any practical sense.
>
>Taken to the limit, some assets would escape - yet much could be
>obtained if desired, and many societies appear to pay higher tax rates
>than we do. I imagine we would start by selling California,
>Hawaii, Guam, etc to the Japanese.

You've switched from tax to confiscation (although there appears to be
little difference in the modern welfare state, according to supreme court
decisions).  The government does not have the legal authority to confiscate
property, merely to tax it into oblivion.

(Of course, if you are talking about extra-constitutional behavior by the
feds then you should also take seriously the possiblity of extra-legal
action by citizens against their government, i.e. revolution. Wholesale
confiscation of property is neither probable nor possible in legal or
practical terms. You would be more likely to see California seceed from
the union than its residents private property confiscated and sold to
the Japanese to pay off the federal debt.)

>Many consider themselves closer to workers in this 'corporation' than
>stockholders or uninvolved.  The eventual failure of this board and
>their replacement by a subsequent government is of interest to many.

In theory, we are all shareholders in the federal 'corporation' (all of
voting age, anyway). Of course, we are not all equal shareholders to judge
by the dividends (benefits - taxes). Many consider themselves to be
minority shareholders with absolutely no rights whatsoever. Think of it
as an ESOP/union controlled by the mafia.

>[Standard crowding out theory.]

I am not disputing that increased borrowing by the federal government
increases interest rates. I am disputing a) the uniqueness of the
phenomenon (doesn't it also happen when industry and households borrow?);
b) the significance of the increase given that it is diluted among the
savings available in our global economy (just what is the deficit relative
to worldwide borrowing?), and c) whether this is necessarily a bad thing
given that it has the effect of encouraging savings and discouraging
unproductive borrowing (ignore c if you think that manipulating commodity
prices is good for the economy).

>Rising interest rates will further worsen the
>deficit, raising borrowing, around and around - once no one is lending
>except to the feds, the velocity of money will drop, and all of the cash
>available will be loaned to the feds

You speak as if the money were sinking into a black hole. In fact, everyone
who is a) on welfare, or b) holding bonds (and receiving interest) will have
plenty of cash no matter how big the deficit is since they are the ones
receiving the benefits of federal spending.

Now you might argue that government has a tendency to direct money toward
unproductive elements of society, but that is a spending issue; it would
not be relieved in the least by raising taxes to reduce the deficit (even
if increased tax revenues were applied to the deficit which they never are).

On the other hand, anyone under 40 who thinks he will ever see any kind
of reasonable return on his social security payments is just not paying
attention.

>>bond holders don't appear to be worried (yet). On inflation, traditional
>>indicators of inflationary expectations such as the price of gold and
>>real estate are at their lowest point in years. If bond holders aren't
>>panicking, why whould I?
>
>Maybe because most market participants will take current higher yields,
>gambling that they can get out just before rates increase.

This seems unrealistic particularly with respect to 30-year bonds. One
way or another, in an inflationary spiral, someone is going to get stuck
with (near) worthless bonds. In fact, these bonds are considered extremely
safe by banks and such.

By the way, are you aware that the same thing is happening to almost every
other industrial welfare state? Even Japan! I don't think that other
nations nearly so advanced along this path as the US, though.

>The national parks are nearly worthless - resource poor, isolated, poor
>traffic access, not competitive with Disneyland.

This is totally baseless. The fact that they are not utilized efficiently
by the fedederal government is no evidence of an inherent lack of value.

>If the government started with only the 13 colonies, and has taken in 
>$X, and spent $X+4 trillion, and has a huge positive net worth, then how
>can you criticize their performance so strongly?

$X being the total of taxes collected over two hundred years? Besides, I
think you are confusing private and public property again.

To say that the federal government "started with 13 colonies" is to
totally misunderstand the legal relationship between the people, states,
and federal government. America is not a socialist state (yet) and it
certainly wasn't in 1776 or 1787. Even as late as the 1930's, the Tenth
Amendment and the takings clause of the Fifth Amendment were generally
enforced by the Supreme Court.

>I can estimate the assets differently - the GNP is something like
>$4T, most of which is labor. If 20%, or $800B is the output of the 
>the capital assets of this country, then at a 20:1 PE ratio, the total
>net worth of the country is $16T.  Off the cuff, I will guess the
>governments (state, fed & local) hold 10% of assets, or $1.6T - hence the
>feds are long bankrupt.

This is a really bad way to estimate value of assets with respect to a
quasi-bankrupt entity like the federal government.

Simply put, the federal government is not presently operated for the profit
of the shareholders, merely the profit of the board of directors, and,
therefore, does not economically employ its assets. The fact that the
federal government is holding title to a piece of land which does nothing
to contribute to the economy of the US does not imply that the same piece
of land would not contribute to the US economy in private hands or that
the piece of land has a zero value on the open market. There are, for
instance, branches of the federal government dedicated to unproductive
use of assets.

What we really need is a Wall Street-style hostile takeover of the federal
government. Break it up and sell off the pieces. Return the federal
government to its core, constitutional business of national defense,
foreign policy, and interstate relations, and return all other powers
(and assets) to the states, respectively, or to the people.

The $4 trillion debt is a step in the right direction.