The Golden Age of Government Is Just Beginning

When I talk to self-identified “conservatives” today, I am surprised how many of them have, finally, awakened to the fact that governments all over the Western world are bankrupt. It has taken a long time for them to do the math, but it is finally dawning on them that when a government’s debts and liabilities massively outweigh its current and future assets and “income” (a more-accurate word would be “loot”), that country is headed for disaster. While they cannot be praised for their quickness in recognizing something so blatantly obvious, at least these “conservatives” have bested their “liberal” friends in solving the problem, since most of the latter are, sadly, unable to add and subtract numbers with 12 zeros.

While I am pleasantly surprised that many so-called “conservatives” can now spot an obvious bankruptcy when they see it, I am less than impressed with their understanding of what bankruptcy entails for a government. Almost invariably, they naively assume that government bankruptcy is analogous to the bankruptcy of a private company. Just as a bankrupted company like Enron shrivels up and disappears from the economic stage, they assume, bankrupted governments will shrivel up and, if not disappear from the world stage, at least take on severely limited roles.

The bankruptcy of governments is, thus, assumed to be a positive development for individual liberty, according to many so-called “conservatives,” because governments will be forced to live within their means and abandon most of their unsustainable and meddling schemes. A golden age of liberty and respect for the Constitution is assumed to be right around the corner.

This idea that government bankruptcy is a positive development for individual liberty is just plain wrong, however. More than that, it is just plain delusional. Governments are not, in any way, analogous to private companies, and it cannot be sanely assumed that they will shrivel up or disappear like private companies, just because they are bankrupt.

Governments obtain their wealth by “taxing” people, and bankruptcy in no way impedes their ability to seize wealth (unless they, like the Romans, stupidly neglect to pay police and military salaries). On the contrary, their desperate need for money during bankruptcy should be expected to induce them to try to suck even more money out of their subjects than they did before.

And why shouldn’t they? A politician’s job always entails spending other people’s money. Some of this money is seized in the form of taxes from the hapless taxpayers of the country, some is printed out of thin air and some is borrowed from people or politicians in other countries that are too stupid or economically ignorant to know better. When a government goes bankrupt, as Greece and Italy are currently in the process of doing, and the flow of funds from the suckers abroad dries up, the government loses only one of these three sources of other people’s money. It can still tax the daylights out of its own subjects, and it can still print money. What’s to stop it?

The example of interwar Germany is instructive in this regard. As a result of the disgusting Treaty of Versailles following World War I, the German government was made insolvent in exactly the same way that today’s Western governments are insolvent. The gigantic war “debt” foisted on the German government’s books was, literally, impossible to pay off, just as most Western governments today have debts and future liabilities on their books that cannot possibly be honored.

What was the result of this de facto bankruptcy of the German government in the 1920s? Did it automatically usher in a golden age of individual liberty and limited government in Germany in the 1930s? Did the German government stop taxing its subjects or printing money? Did the German government learn its lesson about wasting its people’s money on pointless and extravagantly wasteful wars? (N.B.: If you don’t know the answer to these questions, you are about as bright a “conservative” as Newt Gingrich or Mitt Romney.)

The problem with assuming that governments will shrivel up just because they are bankrupt is that governments, unlike private companies, can still strong-arm people into giving them money, even when they are bankrupt. When Enron went bankrupt, it was not in a position to send armed thugs to the homes of its investors to hustle up more money. Nor was it able to simply print a pile of money in order to pay off its mounting debts. In other words, it went down, as it should have gone down, because it couldn’t force people to keep funding its idiotic and wasteful operation. Government, by contrast, does have a literal army of enthusiastic and sadistic men on the payroll, who will follow orders to kick in doors, bust heads and gas people in order to hustle up money to keep the wasteful operation rolling along. (N.B.: If you think people pay their taxes out of the kindness of their hearts, instead of out of fear that cops will haul them away to the American gulag, you, too, are about as bright a “conservative” as Newt Gingrich and Mitt Romney.)

Moreover, governments are very careful to continuously waste a very large chunk of money on the military and the police. After all, governments claim that their primary purpose is to “protect” their subjects from foreign threats, so they are mindful to spill a nice chunk of their budget on these strongmen when times are good. (Whether government does, in fact, “protect” its subjects from foreign threats can be gauged by the fact that governments often bankrupt themselves trying to fund their militaries. With a “protector” as financially irresponsible as Enron, how much protection are we really getting?)

So when a government goes bankrupt, there exists a giant horde of armed men in the military and police who expect to get paid, and who will not take kindly to budget cuts. Ever mindful that a horde of armed men is a constant threat to the civilian government when they are unpaid and unhappy, the political class should be expected to do whatever it takes to keep paying the salaries of the horde. And where, do you suppose, will this money be hustled up when the government has bankrupted itself and can no longer borrow money from foreign suckers? (N.B.: If you don’t know the answer to this question, you are definitely as bright a “conservative” as Newt Gingrich and Mitt Romney.)

Hustling enough money up to pay the salaries of the military and police (and other privileged and militant bureaucrats, as in Greece) is not always easy, however, because subjects don’t often appreciate having more and more of their money confiscated by wildly irresponsible politicians.

Fortuitously for governments, shaking people down ain’t what it used to be. They no longer need to send their armed thugs to kick down doors, crack skulls and gas their subjects in order to confiscate money. They can simply print money out of thin air and — voila! — now they can make payroll! If their subjects are stupid enough to trust paper money, then why not skin them a little in order to “solve” the government’s problems? Do you really think that an organization with a budget problem that has the ability to print money will not choose to do so for its own benefit? Do you really think Enron would have refrained from printing money to prop itself up if it had had the ability to do so?

The reason so many so-called “conservatives” cannot grasp these obvious and foreseeable consequences of a government bankruptcy is that they do not have a true understanding of what government is. Government is not a private company or a charitable organization. It does not abide by the same laws as the rest of society. It can continue to exist — nay, thrive — even when its debts vastly outweigh its assets and income. It can print its own money and continue to tax its subjects even when it has bankrupted itself. Hence, government cannot be likened to an Enron or a Lehman Bros. as a relatively benign entity when it goes bankrupt. It is an economic vampire that will not shrivel or die easily. It can continue to suck its citizen victims in order to nourish itself even when the absurdity of its balance sheet is evident to everyone.

Hence, if you are a self-identified “conservative” and you are sick and tired or scared to death of the government we have today, you should not look to our government’s impending bankruptcy as some sort of cathartic and purifying event that will usher in a new age of liberty. It will not. More than likely, if history is any guide, the slew of government defaults that are in the pipe in the Western world will usher in a golden age of government.

Government bankruptcy is not a substitute for the hard work of liberty-minded people to advance the cause of freedom. In and of themselves, a thousand government defaults would not advance the cause of liberty one iota. What is needed in the time leading up to the government’s default is a cadre of devoted, almost fanatical, freedom-fighters who are willing and able to teach the masses about the nature of government and the nature of money. Only with the persistent help of this devoted cadre will there be any chance of fighting the growth of government and the devaluation of money that government default will inevitably tow in its wake.


Mark R. Crovelli

The Daily Reckoning