The Debt of Nations

The greatest trick economists ever pulled was convincing the world that common sense doesn't exist. Armed with graphs and charts and stats and acronyms, the modern economist has spun a tale of confusion and left the public with little option but to trust economic "experts" and money men. Politicians have taken advantage of the confusion and left us with economic policy that ignores basic rules of human nature and common sense.

President Obama would like to continue that tradition. He--along with his economic advisors--are asking us to suspend reality still more. They want us to believe this brave new world requires new economic systems and theories administrated by an altruistic government. This is an unprecedented era, they say, leave it to us to uncover the secrets of monetary policy and apply our witchcraft to the economy.

Problem is there are no economic secrets. There really is nothing new under the sun. Resources are still limited, employment still created by surplus, and balanced budgets still prudent--all ideas we instinctively know. Where we get into trouble, however, is when we convince ourselves this time is different.

If Adam Smith were alive today, perhaps he would remind us this time is no different. Perhaps he would tell President Obama and his ilk that the world is best understood without economic models and statistics but rather through the lenses of experience, philosophy, and human understanding.

Below is an excerpt from Smith's economic treatise The Wealth of Nations. Published in 1776, the book presented a theory of economics that combined Smith's understanding of human nature with his knowledge of economics. The result was a defense of free market capitalism regulated but unhindered by government. Here are a few quotes from the book on public debt and taxes. Each is applicable today.

"The progress of enormous debts which at present oppress, and will in the long-run probably ruin, all the great nations of Europe, has been pretty uniform..."

"Like an improvident spendthrift, whose pressing occasions will not allow him to wait for the regular payment of his revenue, the state is in the constant practice of borrowing of its own factors and agents, and of paying interest for the use of its own money."

"To relieve the present exigency is always the object which principally interests those immediately concerned in the administration of public affairs. The future liberation of the public revenue, they leave to the care of posterity."

"When a nation is already overburdened with taxes, nothing but the necessities of a new war, nothing but either the animosity of national vengeance, or the anxiety for national security, can induce the people to submit, with tolerable patience, to a new tax. Hence the usual misapplication of the sinking fund."

"(Those who advocate borrowing and spending) do not consider that the capital which the first creditors of public advanced to the government, was, from the moment in which they advanced it, a certain portion of the annual produce turned away from serving in the function of a capital, to serve in that of a revenue; from maintaing productive labourers to maintain unproductive ones, and to be spent and wasted, generally in the course of the year, without even the hope of any future reproduction." (1)

1. Adam Smith, The Wealth of Nations (New York: Random House, Inc., 1994), pp. 986, 988, 991, 998, 1002