Vital Signs

The Earth Belongs to the Living

The President and Congress have both promised us a balanced budget in the year 2002. The debt, at that time, will be somewhere between six and seven trillion dollars, which, assuming a seven percent interest rate, will cost close to $450 billion a year in interest. Each year, every year, forever. Is it plausible to think the new generation will pick up that perpetual burden? How can the country equitably deal the debt burden?

Debt can only be disposed of in five ways: one, by paying it off; two, by repudiating it; three, by inflation—which is a veiled repudiation; four, by conquering the creditor to cancel the debt or conquering a third party to seize sufficient wealth to pay off the debt; or, five, by large real growth which makes the debt service a smaller share of a growing pie. If large real growth is unlikely, and conquest unpalatable, only the first three methods are available. The classic approach is inflation. The United States, since the Vietnam War, has used consistent inflation, usually around three percent, to reduce our debt. Inflation can be a successful method if no new debt is incurred, but continuing large deficits, and the new borrowing to cover them, have overwhelmed the tactic.

The Founders, other than Hamilton, believed that a perpetual debt was incompatible with self-rule, since the current generation cannot be asked to pay for decisions they did not make. Thomas Jefferson, during his term, reduced...

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