A Debt of Society

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Free Money Finance, a blog discussing personal finance and budgeting issues, has a fun article about going to Russia and educating people about debt. The proprietor uses several verses from Tanakh, particularly Proverbs, to illustrate the Biblical attitudes towards debt. In particular, note the following:

If you do borrow, you must pay back all of the debt. It is a sin to borrow and not repay.

Psalm 37:21 says: “The wicked borrow and do not repay, but the righteous give generously.”

If we don’t want to be counted among the “wicked,” we must repay any debt we owe. It really doesn’t matter if the circumstances are beyond our control. If we make a debt, we’re stuck with it. Ecclesiastes 5:5 says: “It is better not to vow than to make a vow and not fulfill it.”

The United States Government has been borrowing money for a long time, with very little thought about how to pay it back. The deficit is projected to get much worse as the Baby Boom generation takes advantage of Medicare and Medicaid; that money must come from somewhere. (I do think that the projections are too pessimistic; much of the cost that government pays is for caretakers for the elderly, and the Japanese have been researching robotic exoskeletons for the elderly specifically to avoid this problem. The exoskeletons should be ready for prime time in a year or two. Regardless, there's still a big hole in the budget.)

As I wrote previously, we private citizens can donate money towards paying down the national debt. "But why?" you may ask. "Congress decided to spend that money without my say-so!" Very true. But aside from the fact that donating money towards the debt punishes Congress (by taking money out of the general budget), still we have a moral responsibility to pay back what this country owes.

Few politicians these days even consider really paying down the debt. Those who want to balance the budget typically want to do so with tax increases, and only so that they are free to invent new government spending. They would prefer to simply pay the monthly minimum on our national credit cards, as opposed to paying off the principle. Others, of course, prefer for America to live beyond her means. They want to be all things to all people, and to push off the costs to those poor saps left holding the bag in a few decades. This is wrong.

A government in debt ha a few options. The most moral, obviously, is to pay the debt off by living within the means of the country. Or, less happily, you can pay it off by raising taxes and funnelling the revenue towards retiring the debt. Or, governments can repudiate the debt entirely, which is breach of contract and comes close to outright theft.

But if a government's debts are denominated in its own currency, things get interesting. America owes a certain amount of dollars. America also prints dollars. The temptation is great for a country in this situation to simply inflate away the currency, reducing the real value of its debts proportionally. Of course, this ends up reducing the wealth of the people as well; this is why a stable level of inflation is called the "invisible tax," because it increases the wealth of government at the same time as it impoverishes the people.

But inflation is low, is it not? Well, maybe. Remember that government tax brackets are adjusted according to inflation, as are many types of government spending programs. And the inflation numbers themselves are reported by… yup, the very same government. If inflation is systematically underreported, then more people will drift into higher tax brackets at the same time as government payments are held artificially low. This is a constant hazard, of course; but it becomes all the more attractive to a government that is deeply in debt.

Whether or not government is actually deliberately inflating the currency, the massive amount of debt creates a continuing temptation to do so. For the sake of the very moral character of our government, we the people have an urgent need to get the debt under control if our elected officials will not. It is simply the right thing to do.