So I want to show folks of a libertarian bent why government debt can be blessing.
So you have a classic prisoners dilemma
It would be nice for Frank and Jesse if they could both agree not to rat each other out and wind up in the bottom right box. The story here is that they are convicted of some lesser crime – I usually say “the gun charge.”
However, they can’t get you for the murder unless someone talks. However, since its in both Frank and Jesse interest to talk the state can get them both to plead guilty to some higher charge lest one of the talks and the other goes to trial and is convicted on murder.
So instead of the bottom right, they end up in the top left which is worse for both of them.
Now enter the Mafia. Suddenly the game changes
Now if you confess you die. Seems like a bummer. But, nope. It’s a blessing. Because it allows Frank and Jess to co-ordinate. They move from straight from the top left to the bottom right and both are out in two years.
If there is one thing that I hope this blog has conveyed it is that transferring resources through time is difficult. People look on “savings” as some natural and good thing but they don’t see everything that lies beneath.
Storing physical goods is costly. Building buildings can work but there is an enormous amount of commitment. What makes this process really easy are promises. You give your money to someone and then they promise to give it back.
However, ALL PROMISES CAN BE BROKEN
This is a major problem.
Enter the government. The government can help you out by enforcing your promise. However – very importantly – it cannot enforce your promise against people who are judgment proof. If the promiser has already blown the money the promisee is just out of luck.
Now collateral can help with this. But, then that should immediately show you why a collapse in collateral values is huge potential loss for the economy.
Now enter Federal Debt. The federal government can promise to collect on your behalf from whomever is not judgment proof. That is to say, if there is any money to be had in the future, the government can get it and then give it to you.
This is HUGE.
Despite folks lack of faith in the government, of all the promises you can get this is the kind you want. The person who ultimately spent your money might be broke, senile or dead. It doesn’t matter. The Federal Government can still collect on someone else.
Now you can transfer resources into the future.
Which means that the government – simply by virtue of the power to borrow and tax – is a technology. It allows you to do something that is otherwise impossible.
There is literally no way a group of free people operating on principles of mutual consent could ever accomplish this because the entire process turns on non-consent.
And, without the ability to co-ordinate the economy can’t satisfy the wants and needs of its members.
Just like joining the mafia, you are better off because you can be harmed. It allows you to enter into co-ordination that is otherwise impossible.