Barack Obama and the main stream media at some point in this election will attempt again to change the discussion from the perils of the public debt to one of income inequality (which we earlier refuted to be a bogus argument). The public debt is the greatest danger we face today. It stands at a record high of $15.7 trillion and we continue to run a deficit of $1.3 trillion per year.
Our Founding Fathers understood well the dangers a high public debt posed to our freedoms. Thomas Jefferson warned,
I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt. If we run into such debts, we must be taxed in our meat and drink, in our necessities and in our comforts, in our labor and in our amusements. If we can prevent the government from wasting the labor of the people, under the pretense of caring for them, they will be happy.
Allowing people to earn the fruits of their labor is the greatest incentive for getting people to be productive members of society. George Washington was very wise in his counsel for free markets:
A people… who are possessed of the spirit of commerce, who see and who will pursue their advantages may achieve almost anything.
Washington cautioned against government being too involved in the markets as we so often see today. Government caused the housing crisis by subsidizing housing for those who could not afford it. Fannie Mae and Freddie Mac were instructed in 1996 that 40% of loans had to go to low income borrowers. Economic Professor Antony Davies sheds some light on the former housing crisis and the pending student loan crisis.
These bubbles forming and bursting are easily predictable. They are often predicated on government facilitating a market place being overrun with debased currency (cheap money). This leads to speculation on a grand scale which helps create the environment for a bubble to quickly form and then burst. The Dutch tulip bubble bursting in 1637 was one early example of such an event.
Our Founding Fathers were better students of history than we appear to be today. Knowing well the history of government being too involved in the markets, Washington cautioned:
Harmony, liberal intercourse with all Nations, are recommended by policy, humanity and interest. But even our Commercial policy should hold an equal and impartial hand: neither seeking nor granting exclusive favours or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of Commerce, but forcing nothing; establishing with Powers so disposed; in order to give trade a stable course.
Beyond being too involved in the market place, our Founding Fathers warned against government going into debt to fund basic operations. Alexander Hamilton did find it important for us to incur some debts with foreign nations to fund capital projects and help build our credit internationally. But, to fund large portions of a wide swath of discretionary spending by borrowing undermines the security of the country.
Thomas Jefferson knew that government could easily fall into the habit of incurring debt upon debt:
A departure from principle becomes a precedent for a second; that second for a third; and so on, till the bulk of society is reduced to mere automatons of misery, to have no sensibilities left but for sinning and suffering… And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression
Government authorities start searching for more streams of revenue to feed their spending addiction and to keep up with the amounting debt. It is how we end up with a wide assortment of taxes, such as income taxes, sales taxes, property taxes, and death taxes. Thomas Paine looked at the history of previous civilizations and much older current civilized countries when warning:
If, from the more wretched parts of the old world, we look at those which are in an advanced stage of improvement, we still find the greedy hand of government thrusting itself into every corner and crevice of industry, and grasping the spoil of the multitude. Invention is continually exercised, to furnish new pretenses for revenues and taxation. It watches prosperity as its prey and permits none to escape without tribute.
During George Washington’s farewell address in 1796, he warned us a final time:
No pecuniary consideration is more urgent, than the regular redemption and discharge of the public debt: on none can delay be more injurious, or an economy of time more valuable.