Saturday, October 12, 2013

Insight from Pete Boettke

In part, Boettke writes:

Good economics not only looks at the direct and immediate consequences, but traces out the logic of the indirect and long-run consequences. Good economics is what led Adam Smith to condemn the fiscal irresponsibility of government. "When it becomes necessary for a state to declare itself bankrupt,” Adam Smith wrote in the fifth book of The Wealth of Nations, “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 the 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."

Unfortunately, as Smith points out in the next paragraph, all governments, ancient as well as modern, have resorted to juggling tricks rather than face up to their fiscal irresponsibility. The juggling trick that Smith is referencing is the cycle of deficits, debt, and debasement.

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