Monday, August 01, 2011

Crisis averted?

It looks like what was inevitable is going to happen. The Times reported today that the house passed an agreed upon plan. I haven't analyzed it yet, but, I'm almost positive I will be unhappy as it looks like the cuts are over 10 years and the increases in the debt look huge (in the trillions). Still, not over until its over.

I notice that Paul Krugman is miserable about it, for which I am grateful (he is the most outspoken of commentators, also an economist, who seems to believe the depression was cured by government spending, despite all the evidence to the contrary). I have no doubt tea partiers will be livid for the opposite reason.

Me, I'll probably mostly side with the tea partiers, but I will give it a look see - not that any mortal can tell what these bills even mean - I read the Boehner plan last week and laughed at the impossibility of chopping through its hyper-technical legislativese.  What I'm really upset about is that I'm so busy this week that I forgot to post here. Fortunately, since I had published one of my rare op-eds in The Roanoke Times this past Sunday, I'll give myself a break and re-post it here. Since they only allow 750 words, you will be delighted with my unusual brevity. They entitled it - A crisis rooted in our founding:

In many ways, the current debt crisis reminds me of the first one in United States history. It also involved two opposing ideologies, as deeply divided as we are now over federal power.

Alexander Hamilton, our first secretary of the treasury, and Thomas Jefferson, our first secretary of state, would eventually snipe at each other so much in the press through pseudonym and proxy that at one point, President George Washington wrote both of them to request they stop. Both wrote him back pointing fingers at the other and politely indicating that nothing was likely to change. And, they were right.

One of the new government's first major struggles was over funding debt. Hamilton's 1790 report to Congress on public credit had stirred up a hornet's nest in which the public was deeply divided before Jefferson was even sworn in. Some of Hamilton's ideas were not very controversial. He was adamant that America needed to establish good credit: "And as on the one hand, the necessity for borrowing in particular emergencies cannot be doubted, so on the other, it is equally evident, that to be able to borrow upon good terms, it is essential that the credit of a nation should be well established."

But he also made it clear in his report that public debt could lead to extravagant wastefulness and was "liable to dangerous abuse." It should be a "fundamental maxim," he wrote, "that the creation of debt should always be accompanied with the means of extinguishment." This is all common sense and hardly originated with Hamilton.

Nowadays, of course, our government does not run a debt just in times of emergencies, but as a matter of course with no plan for extinguishment. Although politicians will argue about the size of government, you will find very few who, for example, argue against the existence of Social Security and Medicare, the FBI or a standing army.

The first Congress had no problem with funding the existing federal debt. But many were extremely concerned with Hamilton's plan for the federal government to assume the individual states' debts, making them federal ones, and with the taxation and power that would go along with assumption. The stakes and passions were sufficient to sunder Hamilton's political relationship with James Madison (which led to the constitutional convention and The Federalist Papers), then a leader in Congress whose cooperation Hamilton needed in order to pass his plan.

Although suspicious of banks, Jefferson also well understood the importance of good credit. He wrote James Monroe on June 20, 1790, that if some "plan of compromise" was not had, "our credit ... will burst and vanish, and the states separate to take care every one of itself. This prospect appears probable to some well informed and well-disposed minds. Endeavours are therefore using to bring about a disposition to some mutual sacrifices."

Though of the opinion "that Congress should always prefer letting the States raise money in their own way where it can be done ... in the present instance I see the necessity of yielding for this time to the cries of the creditors in certain parts of the union, for the sake of union, and to save us from the greatest of all calamities, the total extinction of our credit in Europe."

He also mentioned to Monroe another issue that was very important to him -- the future location of the nation's capital. A Southerner, he preferred it be on the Potomac to being in Philadelphia. The capital was actually still in New York, and one day Jefferson bumped into a dejected Hamilton there in front of Washington's office.

Jefferson capitalized on the moment by inviting Hamilton to dine at his home with Madison. They there agreed, perhaps on the very same day Jefferson wrote Monroe, that Madison would find the votes to pass Hamilton's credit plan and in turn Hamilton would make sure they got their way on the location of the capital. It worked, our credit-worthiness was secured and the location of the capital fixed.

Today, we face a similar crisis but over a huge federal debt. Our present problem also concerns whether we should continue to indebt future generations, which Jefferson, at least, believed we had no right to do. Like us, the founders could not solve all their problems at once, but they solved their debt crisis, and so can we.


  1. I thought that was a good editorial.

  2. Thank you, Mr. CountryDew.

  3. Gotta love Krugman. Brilliant economist, agree with him the vast majority of the time, and he's right, cutting spending now is throwing gasoline on a fire. I appreciate, especially since you were published, that for once you wrote about Jefferson without trying to make him look like a dick.

  4. I am of the opposite view on Krugman - spending is our problem. Didn't work in the depression (Morgenthau) and didn't work this time. Give me autocratic powers, I'll fix it in two weeks and a weekend. I may not have a Nobel Prize, but I did stay at a Holiday Inn Express once. As for Jefferson - the Roanoke Times has a 750 word limit, or I would have bashed him about a bit. Actually, the first thing I ever published there was a letter to the editor about him. My next door neighbor asked me if I knew where I lived and did I want to get myself killed.

    Thanks for the comment, you Krugmanite.

  5. Your next door neighbor sounds like a wise man. I like him already.

  6. Crisis apparently NOT averted based upon the downgrade by S&P.
    This happened because of insufficient cuts- not insufficient spending. (Hey Bear- do you increase your household's net worth by maxing out your credit cards and then asking for an increased credit limit to really increase it?)

    Krugman has seen his Keynesian theories burn before his eyes yet won't admit it.


  7. Anonymous8:48 AM

    Krugman seems to be from the "underpants gnome" school of economics:

    1. Spend many times as much money as you have.

    2. ???

    3. Profit.

  8. Hence the "?" mark after the words. Of course nothing has been resolved, only put off and dangled.

    To be fair to Keynes (and Bear, who is Keynesian), more people, and certainly western governments agree with him than us (or, Hayek). But, I'm probably writing on this for this week's post, so I'll stop here.


Your comments are welcome.

About Me

My photo
I started this blog in September, 2006. Mostly, it is where I can talk about things that interest me, which I otherwise don't get to do all that much, about some remarkable people who should not be forgotten, philosophy and theories (like Don Foster's on who wrote A Visit From St. Nicholas and my own on whether Santa is mostly derived from a Norse god) and analysis of issues that concern me. Often it is about books. I try to quote accurately and to say when I am paraphrasing (more and more). Sometimes I blow the first name of even very famous people, often entertainers. I'm much better at history, but once in a while I see I have written something I later learned was not true. Sometimes I fix them, sometimes not. My worst mistake was writing that Beethoven went blind, when he actually went deaf. Feel free to point out an error. I either leave in the mistake, or, if I clean it up, the comment pointing it out. From time to time I do clean up grammar in old posts as, over time I have become more conventional in my grammar, and I very often write these when I am falling asleep and just make dumb mistakes. It be nice to have an editor, but . . . .