Debt and Ethics, or Stealing from the Unborn

This is a continuation from my previous post.
Before I begin, I wish to make clear that the value judgements that I am making here are based on a set of moral principles which, if not universal, are at least reasonable enough to be accepted by the majority of Americans.  A comprehensive description of this moral code would be an exhausting and boring undertaking, so in the interest of conserving time and energy I will outline a model which will hopefully suffice.  Think of the 10 commandments of the Bible, only instead of these laws being issued by a divine being, they are a set of guidelines agreed upon by society to serve the best interests of society as a whole.  We shall not kill one another, we shall not steal from one another, we shall not intentionally deceive one another, etc.

So what is American government debt?  It is the balance of money borrowed in order to satisfy immediate needs with the promise of future repayment plus interest.  There are many justifiable reasons for issuing debt, such as providing disaster relief, stimulating an economy in recession, investing in infrastructures which will foster a more productive future, and maybe, just maybe funding necessary and just military campaigns.  Each of these is a topic in and of itself, and there are many more conceivable reasons to issue debt.  But for every justifiable reason, we could think of ten unjustifiable reasons.  The bottom line is this: in order to be ethically justifiable, every debt-financed expenditure must either carry an expectation that it will lead to greater revenues in the future, or if not, then it must be made with the understanding that it will be payed for with other revenues, either by cutting spending elsewhere or by raising taxes.

So here is my problem with inheriting $15 Trillion or so in government debt.  Our country is supposedly a representative democracy, meaning that even though a select few make budgetary decisions, they do so with the blessing of the majority of voters.  If your representative (Congressperson, Senator, President) makes budgetary decisions that you disapprove of, then you have a duty to remove him or her from office and replace him or her with someone who will rectify the situation.  The problem is that most voting Americans have not cared or paid attention to what their elected leaders are doing.  This apathy or ignorance leaves the voters responsible.  With power comes responsibility, right?  Well in a democracy, every voter has equal shares of political power and responsibility, like it or not.  We don't get to reap the benefits of living in a free country without shouldering the burden of responsibility.  If you prefer no power/no responsibility then I wish you good luck in relocating to a feudal society where you have no say in your own fate.

Now I don't wish to patronize here, but I worry that it may be necessary to clarify for some the difference between debt and deficit.  A debt is a quantity of money owed, a deficit is the margin between income and expenditure.  So if you had a yearly income of $100 for ten years, and you spent $110 during each of those ten years, then each year you ran a deficit of $10 and at the end you accrued a debt of $100.  So we can think of the debt as the sum of all past deficits.  A debt in and of itself is not an evil thing, for as long as the interest is paid, it doesn't grow.  Maintaining a deficit, however, causes your debt to grow very quickly.  Even worse is the practice of growing deficits.  The U.S. government is in the habit of growing deficits, causing the total debt to grow very quickly.  Using the above example, with an annual income of $100, a growing deficit would look like this:

Year 1: Income $100  Expenditure $110  Debt $10
Year 2: Income $100  Expenditure $120  Debt $30
Year 3: Income $100  Expenditure $130  Debt $60
Year 4: Income $100  Expenditure $140  Debt $100
Note:  In a more realistic model we would expect some growth in income due to growth in GDP, and we would expect some devaluation of the debt due to inflation (neat trick, that), but we would also be paying interest on the debt each year, so for this simple illustration I will ignore these factors.

By this model of increasing deficits, we have accumulated in four years the same debt that we accumulated in ten years with a constant deficit.  To make matters worse, if we decided to correct our behavior and stabilize our debt at $100 for years five onward, we would have to eliminate nearly 30% of our expenditure.  This would not only be brutal, but would also likely damage our economy (read: higher unemployment, lower exports, lower wages).  All this serves to illustrate why increasing deficits should be avoided like the plague.

Okay, back to reality.  Our politicians live their lives one term at a time, be that two years, four years, or six years.  If they feel the need to increase spending or decrease taxes in order to get reelected today, THEY WILL DO IT, CONSEQUENCES BE DAMNED.  This is why the people have to take responsibility for the budget.  Most of us are able to live within our means, but we don't expect our government to do the same.  If a politician says, "I will lower taxes," or, "I will increase spending on [insert favorite social entitlement here]," the people just eat it up.  Any politician who says, "I will increase taxes in order to reduce the deficit," would be burned in effigy and denounced as a blasphemer, even though that is exactly what most of us have to do in our daily lives.

So if you can agree that voters in a democracy carry the responsibility of controlling how much money the government spends and receives, then I have only one more thing to accomplish: to demonstrate that the behavior of past decades is unethical.

I will now pick on the Bush administration, but I assure you this is only because I am young and was not aware of the specific behavior of previous presidents.  I omit the Obama administration because many economists would consider the deficit spending of 2008 onward to be justifiable in order to keep our economy from completely disintegrating.  President George W. Bush presided during a time of (mostly) economic strength and prosperity.  He proudly attached his name to a series of sweeping tax cuts that drastically reduced government revenues in order to put cash in the hands of the American people.  By increasing deficit spending (I am told that President Clinton presided over a budget with a surplus) President Bush increased the size of the debt in order to give voters a pile of money.  This is, in my opinion, morally equivalent to taking out a personal loan guaranteed by unborn generations to come, obviously without their consent.  Therefore, the voters who are responsible for the budget paid themselves CASH in the form of tax refunds, knowing full well that they would never have to repay it.  But this isn't free money.  The debt will fall on the children of that generation, or their children, or so on down the line.  But if you think that the folks holding the Treasury Bonds will forgive this debt when it comes due, you are deceived.

And so as I come of age, I assume stewardship over a debt that was accumulated by previous generations paying themselves via promises that one day I would repay the lenders.  I am not okay with this.  It would be completely impractical and foolish for my generation to default on this $15 Trillion debt, but I do claim this: it would be just.  The investors who have bought government debt under these circumstances knew the score when they bought the bonds, and so they share at least a small portion of the blame for this injustice, and so should not expect to be preserved from financial losses if my generation refused to repay them.  But I expect it won't really matter in the end, because my generation is as greedy as any, and I am certain we will borrow money from our unborn descendants so that we aren't left holding the bag.