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Hornberger's Blog is a daily libertarian blog written by Jacob G. Hornberger, founder and president of FFF.
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Heading Toward Greece

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American statists just don’t get it. They see whats happening with Greece, and yet steadfastly continue down the same road here in the United States. With Americans unable to let go of warfare-state programs and welfare-state programs, federal spending and borrowing continue to soar, hurtling the nation toward the same financial bankruptcy that now confronts Greece.

The situation in Greece is not a complicated one. Under its welfare state, the Greek government taxes people in order to give a dole to selected people, such as the elderly. For a time, the amount collected in taxes was presumably sufficient to cover the amount paid to the welfare recipients as well as the costs of having the government perform this service.

Ultimately, however, the payments to the welfare sector began exceeding the amounts being collected in taxes. Rather than reduce the amount being paid to the welfare sector, which would have made the welfare recipients angry, the government simply borrowed the difference.

As the borrowing continued, year after year, the total amount of debt owed by the Greek government became larger and larger. Ultimately, things got to the point where prospective lenders were no longer willing to lend any more money to the Greek government for fear that they would not be repaid, leaving the Greek government with tax revenues that are insufficient to pay for the welfare, costs of operating the programs, and interest on the debt.

Suppose a family has an income of $100,000 and expenses of $150,000. Each year, it goes out and borrows $50,000 to cover the excess expenditures. After 10 years, the accumulated debt amounts to $500,000. The bank refuses to renew and extend the note, demanding immediate payment of $500,000.

That’s the position that the Greek government is in. Busted. Bankrupt.

Now, what should the Greek government do?

A related question, one much more important for Americans, is: What should the U.S. government do about its situation? After all, in principle the U.S. government is in the same position as the Greek government. That’s not to say that the situation here in the United States is as dire as it is in Greece. Its simply to say that the road that the United States is on ends up at the same point that Greece is in.

Everyone knows that federal spending is soaring out of control. Warfare-state spending and welfare-state spending far exceed the amount being collected in taxes. To cover the difference, the federal government has been borrowing the money. The total amount of the accumulated debt continues to soar.

That’s what the debate over whether to lift the debt ceiling was all about. The debt ceiling is an express acknowledgement that too much accumulated debt on the part of the federal government is a bad thing. Nonetheless, U.S. officials lifted the ceiling once again, enabling the federal government to borrow more money, thereby adding to the total amount of its accumulated debt.

If things proceed as they are, at some point one can never know precisely when the United States will face the same situation that the Greeks are facing. At some point, investors will refuse to buy government bonds. The gig will be up. The government will be unable to pay all its warfare-welfare payments simply because it will lack the full amount of money needed to do so and because it will be unable to borrow the money needed to make up the difference.

Whats the solution to all this?

American statists say that the Greeks just need to tax their citizenry to make up the difference. The Greek government is doing that, but the Greek people, both those in the private sector and those in the welfare sector, are fiercely resisting the new taxes. For those in the public sector, the taxes simply mean a reduction in the amount of the dole. For the private sector, it means more people will be going on the dole, thereby reducing the private sector even more.

The statists also say that the countries in the Euro zone should simply print the money to help Greece make its payments. In other words, inflation. But that’s a fools road. If debasement of the currency was the key to prosperity, countries that have gone down the inflation road, such as Zimbabwe, would be wealthy. The Germans, who have had experience with the ravaging effects of inflation, are not going along with this recommendation of the American statists, and rightfully so.

The principle is no different here in the United States. Imposing higher taxes on the private sector will send marginal firms into bankruptcy and inevitably expand the number of people on the dole. Having the Federal Reserve print the money to accommodate the debt will only add to the chaos and crisis.

Some argue that all that is needed is an across-the-board cut in federal spending say, 30 percent.

The better solution, however, is for Americans to ask themselves the question that libertarians have long pondered: What is the rightful role of government in a free society? Is it the role of government to take money from people in order to give it to others? Is it the role of government to regulate and punish peaceful behavior? Is it the role of government to serve as a military empire or a global police force?

If a critical mass of Americans come up with the same answer that libertarians have come up with, then the solution to Americas woes becomes clear: Dismantle, repeal, and abolish every single welfare-state program (including Social Security, Medicare, and Medicaid, corporate bailouts, and foreign aid), every single regulatory program (including the drug war), the warfare state (including the occupations of Iraq and Afghanistan, the overseas bases, and the military-industrial complex), and the income tax (and IRS).

With libertarianism come peace, prosperity, harmony, and, most important, the restoration of freedom to our land.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.