Monday, October 13, 2008

Interest in the debt rises (on the debt too)

As the financial crisis drags on, people are beginning to pay attention to the national debt again. It has soared over $10 trillion, sparking a slew of stories about the national debt clock in New York City running out of digits. Soon, scientific notation may be necessary to express what we owe.

The silver lining is that the federal government is borrowing money very cheaply right now because investors see it as the safest thing going. The trouble is that it is all of short duration and will need to be refinanced in a few years, perhaps at much higher rates if we begin to feel the sting of inflation.

One Nation Under Debt has benefited a little from this resurgence of interest but let's face it, the book has not really received its just due yet in terms of reviews. I just found more evidence of the book's main thesis, that the non-predatory nature of the U.S. government after the ratification of the Constitution was the main reason for the country's economic success, which of course was a necessary precondition to debt repayment. The evidence bolsters the book's main counterfactual, the relative poverty of Canada, which labored under arbitrary, authoritarian rule until well into the 19th century. Its economy suffered accordingly as the following passage shows.

At the other side of the [St. Lawrence] river, which is here about two miles in breadth, we saw a rising village, called, I think, Ogdensburgh. I asked my host whether they held any intercourse with the yonder town? 'Yes,' said he, 'we smuggle across all their commodities, notwithstanding the extreme rigor of the revenue laws.' What, continued I, could they possess that you possess not; is not your climate as good, soil as fertile, and your skill in agriculture equal, if not superior to theirs? 'All that is true,' replied the loyal Scotchman, 'but the governments are not alike.' Then he began in the Highlands squawking, drawling tone, a long history of 'the enormous duties on tea, the total absence of internal improvements &c. in the Canadas.' -- Jeremiah O'Callaghan, Usury, Funds, and Banks (Burlington, Vt.: For the Author, 1834), 20.

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