Sunday, April 10, 2016

Where does the money go?

Of Politicians, War, and Public Debt:

"...when war comes [politicians] are both unwilling and unable to increase their [tax] revenue in proportion to the increase of their expense. They are unwilling for fear of offending the people, who, by so great and so sudden an increase of taxes, would soon be disgusted with the war [...] The facility of borrowing delivers them from the embarrassment [...] By means of borrowing they are enabled, with a very moderate increase of taxes, to raise, from year to year, money sufficient for carrying on the war, and by the practice of perpetually funding they are enabled, with the smallest possible increase of taxes [to pay the interest on the debt], to raise annually the largest possible sum of money [to fund the war].
...The return of peace, indeed, seldom relieves them from the greater part of the taxes imposed during the war. These are mortgaged for the interest of the debt contracted in order to carry it on."  Adam Smith, The Wealth of Nations, first published in 1776
Smith then goes on to say that even if money was set aside from future revenues to pay for the debts of war, it seldom actually gets used to pay down the debt. Politicians are inclined to spend the money on some other scheme that will win the favour of their constituents. Hence, interest payments rise and war debts continue to grow larger, well beyond the end of the war.
Summing up, if governments can borrow without check, then they are more likely to wage war without check, and the costs of the war spending will burden future generations, since war debts are almost never repaid by the generations that incurred them.

... never repaid by the generations that incurred them!  Two centuries later, and the practice continues.  Is this political malpractice, and are there ethical concerns?  Of course.
Does either party address the issue?

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