Monday, March 29, 2010

That Clinking Clanking Sound

Ever get the impression that the Progressive political class doesn't really understand the concept of money? The phrase "medium of exchange" seems to little intrude on their cultural sensoria. A dollar, mark, franc, pound, ruble, etc. etc. has no intrinsic value whatsoever but what we as functioning mercantile societies choose to assign it. When we use money to buy something what we are really doing is trading our services for the services of someone else. As a first order approximation when we work and for our efforts obtain a certain amount of this trading medium we use it to obtain the services provided by someone else. If we trade an actual item for another that is known as bartering which is fine but unworkable on any but the smallest local scales. So money, printed bills, checks, electronically transferred funds, or whatever merely allows a national and worldwide commerce in goods and services to take place more efficiently--or at all really.

In the end if we borrow, that is obtain some of what we do not already have, we perforce owe the person or institution from which we borrowed that same amount plus a fee for providing that service. A government bond is a loan from the purchaser which after a certain period of time will be repaid along with an agreed upon rate of interest or profit to the purchaser. No government can sell bonds with a zero percent interest rate. Who would buy such a thing? Not even the most addled Marxist/Leninist anti-capitalist zealot would ever buy a government bond with a zero percent interest rate. And the nearly limitless exigencies of the modern welfare state mean that there will never be enough tax revenues to pay for all the goodies received by the populace so money must be raised by selling bonds of sundry types.

Bond holders expect to be repaid the same as any other lender whether they are individuals or governmental entities. Individuals or governments cannot be forced to buy other governments bonds. They must in some degree be induced to buy them with rates of return that are attractive in some way. If the economics of a given country are grim their bonds can only be sold at higher rates of return or in extreme cases not at all. Shaft your large bondholders and your source of funding will dry up until some sort of fiscal sanity is restored to your economy or enterprise.

So in every real sense every cent of the ocean of the intangible but nevertheless all to real money surging to and fro around the globe is an amount owed by someone to someone else. And those loaning someones expect to be paid back just as much as when you sell a car and expect the check to cash properly. If that check bounces you are a victim of fraud just as are bondholders, even enormous ones, victimized if a country defaults on its obligations and is unable, or unwilling, to repay those bondholders. So in the end if, say, France gives the U.S. a chicken it expects the agreed upon dozen eggs in return. If the eggs are not forthcoming there may well be no chicken next time. If you don't repay someone for their services, whether it is to fix a flat tire or to finance your wildly burgeoning welfare state, then you perpetrate a fraud--period.

All the trillions the U.S. is now borrowing to finance its rapidly expanding public entitlement programs must be repaid at some point or the country will default on those loans and there will be forty-nine kinds of dire economic hell to pay.

Progressives seem to take little notice of any of this and even when they do they claim that the heaped up trillions in debt will be repaid by tax revenues from putative future economic booms. At the rate this debt is piling up the odds that any economy on this planet or any other will be able to do this would make any Vegas bookie bark in derisive laughter.

Progressives further think that those mean old nasty greedy Rich People should pay their "fair" share to enable the countless grandiose governmental projects touted by said Progressives. I got news for them. There aren't enough rich people. Not nearly enough. If we confiscated every last cent from everyone making over 200k, the newest definition of rich, it wouldn't be enough--not even close. The entire personal fortunes of every single filthy rich plutocratic oppressor of the proletariat and every criminally irresponsible Wall Street trader would not even be a good down payment on implementing the fevered entitlement dreams of progressives. Heck the personal fortunes of every last man-jack and woman-jill taxpayer in the whole country will not be enough. When the debt load equals and then surpasses the sum total gross domestic product of the labors of every single working person in the United States then we will officially be bankrupt and physically incapable of repaying this ever rising Everest of debt.

Oh sure if such a massive default were to actually occur the huge foreign government bondholders will be stuck, for an indeterminate period, and may have to just suck it up and take the hit. What they will not be likely to do is throw several trillion bucks more good money after bad because that very act would just make it that much unlikely that they would ever be repaid. Our overall public debt level now rivals that of the period during the Second World War which was repaid fairly rapidly it's true but would manifestly not have been if the current entitlement structure, let alone any Progressively contemplated future one, had then been as extensive and overarching.

Massive defaults by developed nation-states are rare but they are beginning to appear. Greece in fact has ceased to be a going concern in almost every way and is currently hat in hand to the wealthier members of the EU, Germany primarily, for a massive bailout package. If the cradle of democracy has foundered on the shoals of the entitlement state then can anyone say we will always be immune to the same fate?

No matter how mind-numbingly large the numbers blithely tossed around, and no matter how blase Progressives are that enough suckers will be found to pay, the fact will always remain that every single dollar of debt is and will be owed to someone who would like it back at some point. That's just capitalism which as reviled as it may be is not merely the preferred economic engine of prosperity but rather the only engine of prosperity ever proven to actually work.

Capitalism is not an intellectual preference competing among many others. It is the inevitable manifestation of the deepest inherent needs and wants of every human on the planet. And this trait is not merely human. No living thing, not even a microbe, can go about its business without the remuneration required for its survival. The more any given state misguidedly attempts to suppress or supplant these imbedded tendencies the more generally miserable will be its inhabitants. Progressives and harder leftists can, and of course will, argue about this until doomsday but it is, whether they will ever admit it or not, inevitable that the current, and unprecedented, massive expansion of the entitlement state will ultimately depend on many many someones somewhere at some time being willing to work for nothing. Any volunteers?

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