Dealing With the National Debt
The national debt is the amount owed by the federal government, mainly in the form of Treasury securities. Except for a few brief periods when the government ran surpluses, the national debt has been continuously increasing over time, and there is every indication that it will continue to do so for the foreseeable future.
While you or I can borrow money and go into debt, there is a limit to the amount of debt that we can sustain, based upon our assets, before creditors will refuse to lend us additional money because they will deem us to be at too great a risk of not being able to repay the loan. The same applies to corporations as well as state and local governments.
So, how is it possible for the federal government to spend more money than it takes in, year after year, going ever deeper into debt and still remain solvent? Readers who wish to attempt to solve this problem may do so before reading further.
The reason that the federal government is able to continue to run deficits is that it controls the currency, so it is able to in effect create money in order to make payments on the Treasury securities when they become due. This expansion in the supply of currency results in inflation, which is in effect a tax on savings.
As discussed in my article A Proposed Method of Eliminating Inflation, members of Congress consistently fail to balance the federal budget because doing so would require them to make hard choices between cutting back on spending on programs favored by constituents and raising taxes, both of which would cause the legislators to incur the displeasure of the voters and thereby hinder their (the legislators’) chances of being reelected.
The growing national debt is low on the list of problems of concern to the public because the latter are largely unaware of the link between deficit spending and inflation. On the rare occasions when politicians mention the national debt, it is usually to lament the fact that we are leaving a debt burden to our children and/or our grandchildren. Such statements by politicians in effect tell the public that we can let our children deal with the national debt; we have more pressing problems that require our immediate attention. When the time comes, our children can presumably pass the ever-growing national debt on to their children, further kicking the can down the road.
While it is certainly true that we are leaving a debt burden to our children and grandchildren, the dirty little secret is that we are all paying for the national debt as it is being accumulated, due to the link between deficit spending, which increases the national debt, and inflation. Educating the public about this fact, as well as to the existence of other societal problems, is a necessary step in motivating a solution to these problems.
To deal with the problem of the growing national debt and the resulting inflation, the following measures are proposed to be incorporated in the rewritten Constitution, as described in my article Rewriting the Constitution.
1. As advocated in my article A Proposed Method of Eliminating Inflation, back the currency with gold. Negotiate with other nations to adopt the gram of gold as the international unit of currency. Require that trade with other nations is done using a gold-backed currency. Require that gold certificates be redeemable on demand at banks for the equivalent in gold, for at most a small transaction fee.
2. Require that the federal budget be balanced, except in the case of a dire emergency and then only with the approval of two-thirds of both houses of Congress as well as the president.
3. Reduce the role of the government to performing those essential services that cannot be done by the private sector. In particular, eliminate public education, as advocated in my article Our System of Education: The Problems With It and How It Can Be Improved, and dismantle the social safety net, as proposed in my article Dealing With Entitlement Cost Escalation. As Henry David Thoreau put it: “That government is best which governs least.”
4. Pay off the national debt. Some of the money to do so could be obtained by selling the buildings used for public schools as well as other government resources that would no longer be needed when the government is reduced to its bare essentials.
5. Eliminate all forms of taxation. Instead, fund the government using a fee-for-service business model, as discussed in my article A Proposed Method of Eliminating All Taxes.