The government as juggler

Boyes' post yesterday invites a concerned citizen to recall the warning provided by Adam Smith on this topic. Smith called the various actions outlined by Boyes as "juggling tricks" a metaphor that captures not only the recent circus in Washington, but really all activities over the past 100 years that have resulted from the activities of politicians engaged in what is euphemistically called "public finance".

Smith writes about efforts by politicians to deceive the public about the true financial condition of the state:

It occasions a general and most pernicious subversion of the fortunes of private people, enriching in most cases the idle and profuse debtor at the expence of the industrious and frugal creditor, and transporting a great part of the national capital from the hands which were likely to increase and improve it to those which are likely to dissipate and destroy it. When it becomes necessary for a state to declare itself bankrupt, in the same manner as when it becomes necessary for an individual to do so, a fair, open, and avowed bankruptcy is always the measure which is both least dishonourable to the debtor and least hurtful to the creditor. The honour of a state is surely very poorly provided for when, in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so easily seen through, and at the same time so extremely pernicious.

Wealth of Nations - http://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&id=smWN&query=juggling

Peter Boettke makes a set of observations that I find persuasive:

Scott has already talked about this at The Economic Way of Thinking, but we should dig a bit deeper into the discussion from Smith's Wealth of Nations, Vol. 2, pp. 929-2930.

Smith argues in those pages that:

(1) when the public debt reaches a certain level, the fiscal system is threatend, but there is not a single instance where a government has paid off the debt fairly and completely;

(2) rather than pay down the debt with increased taxes, government's choose "pretended payment";

(3) the prefered method of pretend payment is repudiation through debasement of the currency;

(4) this method extends the 'calamity to a great number of other innocent people'; and

(5) rather than do the right thing -- which would be least dishonorable to the debtor, and least hurtful to the creditor -- government instead choses to engage in "juggling trick".

Should these sort of issues be on the table when discussing our current public policies -- from the financial crisis to the health care debate? I think so. Perhaps for the health of the economic system and the future of our kids and grandkids, we should take the juggling power out of the hands of our political leaders.


Well, the obvious answer to the last question is yes. The problem is how? These juggling tricks are firmly institutionalized and have tremendous support, particularly in the informal institutional matrix that supports expansive government. It is the unfortunate case that the majority in the US mistakenly believe that the government can provide ___________ (fill in the blank) and, more importantly and destructively, should provide ___________ (fill in the blank). Given the manner in which the rule of law has emerged and evolved in the US, this informal belief is reflected in the tyranny of the ignorant. That said, given the widespread control of the state by special interests, I cannot be optimistic about the ability to curtail or eliminate juggling tricks.

Gavin Kennedy goes on to confirm that the use of Smith in the contemporary analysis of public choice and public finance is appropriate:

This is a case of the appropriate use of a quotation from Adam Smith’s Wealth Of Nations because it is still relevant, as government debt has increased significantly since the 18th century – in those days debt was raised mainly to fund wars or bribe foreign powers – whereas nowadays government debts fund just about anything that modern, BIG, governments spend taxpayers’ and lenders’ money upon.

Smith wrote while governments were happily inventing new forms of raising revenue for governments from the private economy. ‘Sinking Funds’ to pay-off debt soon became sources of new funds to spend more money, not always, if ever, wisely. Then they added, on a ‘temporary’ basis, income tax , and so it has gone on and on. Today, in Britain’s case, we have ‘stealth taxes’ and ‘quantitative easing’ (printing money), and unheard of levels of debt.

Smith observed that governments managed to avoid paying back all of their debt through various “juggling tricks” (beware: another one of Smith’s metaphors!).

Congratulations to Peter Boettke for picking upon Scott's references to government debt and 'juggling tricks'.

http://adamsmithslostlegacy.blogspot.com/2009/10/another-great-smithian-metephor.html