To Greece: Repudiate Your Government Debt

I heard someone say that the EU can’t let Greece off the hook for its debt, for if it did then, God forbid, they’d have to let EVERYONE off the hook.  Yet, on the other hand, out of the very same mouth, I heard it wasn’t fair to foist the government’s obligations on the people of Greece.

To get to the answer let’s analyze the conundrum of “public debt.”

In the normal course of things I too believe it is “wrong” to default on a debt.

But when it comes to the public debt, Murray Rothbard said it best in one of my favorite Rothbardian essays.

In this 1992 essay, Rothbard drew very sharp and distinct lines between the kind of debt contracted voluntarily in the private sector and the kind the government takes.

Public debt is not private debt. When the government goes into debt, the debtor is not even consulted – and yet his or her future income will be taxed to repay the debt.  This is largely because government is not like a private entity.  It does not borrow, invest, and repay out of its returns; it borrows, spends, and repays by taxing your future income.  This type of transaction is “wrong,” or “immoral”, in Rothbard’s view.

He writes, “Most people, unfortunately, apply the same analysis to public debt as they do to private.”

“When government borrows money, it does not pledge its own money; its own resources are not liable. Government commits not its own life, fortune, and sacred honor to repay the debt, but ours. This is a horse, and a transaction, of a very different color.  For unlike the rest of us, government sells no productive good or service and therefore earns nothing. It can only get money by looting our resources through taxes, or through the hidden tax of legalized counterfeiting known as “inflation.””

He continued:

“The public debt transaction, then, is very different from private debt. Instead of a low-time-preference creditor exchanging money for an IOU from a high-time-preference debtor, the government now receives money from creditors, both parties realizing that the money will be paid back not out of the pockets or the hides of the politicians and bureaucrats, but out of the looted wallets and purses of the hapless taxpayers, the subjects of the state. The government gets the money by tax-coercion; and the public creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future. This is the opposite of a free market, or a genuinely voluntary transaction. Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future. Both parties, therefore, are making agreements about other people’s property, and both deserve the back of our hand. The public credit transaction is not a genuine contract that need be considered sacrosanct, any more than robbers parceling out their shares of loot in advance ….”

Rothbard also reviews the components of the debt and reveals that a lot of it is interdepartmental, like the debts between municipalities, states, and even social security.  At the time, he calculated that 40% of the total public debt (just $3.5 trillion then) was “owned by one or another agency of the federal government,” which he calls an “accounting fiction that provides a mask over reality and furnishes a convenient means for mulcting the taxpayer.”

On Social Security, or what we like to call Socialist Insecurity, he had this to say:

“Most people think that the Social Security Administration takes their premiums and accumulates it, perhaps by sound investment, and then “pays back” the “insured” citizen when he turns 65. Nothing could be further from the truth. There is no insurance and there is no “fund,” as there indeed must be in any system of private insurance. The federal government simply takes the Social Security “premiums” (taxes) of the young person, spends them in the general expenditures of the Treasury, and then, when the person turns 65, taxes someone else to pay the “insurance benefit.” Social Security, perhaps the most revered institution in the American polity, is also the greatest single racket. It’s simply a giant Ponzi scheme controlled by the federal [govt]. But this reality is masked by the Social Security Administration’s purchase of government bonds”

Based on all of the above, he argues that the whole public debt should be repudiated:

“I would advocate going on to repudiate the entire debt outright, and let the chips fall where they may.”

Unfortunately, as he concludes, “In order to go this route, however, we first have to rid ourselves of the fallacious mindset that conflates public and private, and that treats government debt as if it were a productive contract between two legitimate property owners.”

REPUDIATE THE PUBLIC DEBT

The majority of the Greek people have it right.  They want to repudiate the public debt.

The public debt is like a ball and chain. It is not a ‘debt’ for which you or I should be responsible.  It is a scheme to ensure the existence and corruption of government.

So why shouldn’t the Greek people force their government to repudiate the national debt?  What’s wrong with this line of thinking?  I suggest nothing.

I would also suggest the following for Greece (probably in vain): exit the Eurozone, abolish central banking, auction off public sector assets to deal with any legitimate obligations, including its pension liabilities (at least through a transition) and repeal every single piece of legislation that discourages, trips up, or gets in the way of entrepreneurs.

Why even go slow.  There is opportunity in bringing order to chaos isn’t there?!

If Greece were to follow this tack, it could  become a very wealthy country even more quickly than Japan and Germany in the postwar era.

If Greece submits to the demands of the EU and does not repudiate the debt and, worse, goes into even more debt, it will be headed for a hell on Earth that not many have seen in our lifetimes.

[Editor’s Note: Ed Bugos is an anarcho-capitalist and student of Austrian economics.  You can receive his regular updates, analysis and trade recommendations by subscribing here.]

What do you think of Greece repudiating all it’s debt?  Comment below or here.

Originally Appeared At The Dollar Vigilante