I was generally aware of Franklin's remark at the Convention, but did not recall the more negative aspects at the end. Clearly, we recognize that the Founder/Framers were deep students of human nature. Which is why I am somewhat surprised they did not explicitly provide for fiscal responsibility via some balanced budget criterion. Much o…
I was generally aware of Franklin's remark at the Convention, but did not recall the more negative aspects at the end. Clearly, we recognize that the Founder/Framers were deep students of human nature. Which is why I am somewhat surprised they did not explicitly provide for fiscal responsibility via some balanced budget criterion. Much of our problem seems to arise from the promise of something for nothing. Even those of us who know better will tend to fall for it (before we stop ourselves?).
It is fairly clear that Madison studied the Serene Republic of Venice pretty closely, it being the longest lasting Republic. It also, along with Genoa, invented the public bond, so functional deficit financing. The Dutch Republic and Great Britain built themselves as imperial Great Powers with deficit financing. Parliamentary states seemed to be able to manage deficit financing, mainly because the bondholders were, essentially, the Parliamentary class. Autocracies, not so much.
Thanks for mentioning Venice republic, an area of history where I have large gaps. So, yes, RESPONSIBLE deficit spending allows an economy to grow as large and as fast as the corresponding supporting wealth can be created. When things are going well (1600's explorations, 1990's internet boom?) this is great. But the Austrian school says things will always overheat, and then collapse. Plus we now know better than ever before that the appraisal of that wealth value still remains a largely subjective and fluid assessment, not so hard and fast as we are often led to believe.
On the parliamentary class as the more "responsible" bondholders, that triggered the following thoughts:
1) perhaps bond ownership should be limited to "qualified investors", which I understand are those with $100K or mor available, supposedly a more knowledgeable or experienced level of investor. [This may be the practical case already?]
2) maybe we should make 50% of our Congressmen's [and Parliament's?] pay in bonds, so they would remain closely interested in the country's investment quality. [Per recent news article, the Congress, President, VP, & SCOTUS (plus maybe all confirmed "officers of the US"?) still get paid during govt. shutdowns since they are identified in the Constitution [not sure about Senate confirmed military officers - they may not legally be "officers of the US" even if of the military?].
3) all govt. DEFICIT spending should be done via private sector banks/ resources. Possibly with well defined leverage limits? Capital created out of thin air, but not the Treasury printing money. If the deficit amount is not available from the private banks, it does not get spent.
4) this still does not explain why Madison, et al., did not provide for more stringent financial guidance or controls -- were their potential fears assuaged with the example of GB?
5) (related to #4): is there an aspect of scale here, where the larger nations are more subject to taking excessive risks since it seems the tax payer base is still "so large" that errors can still be covered? I am reminded about a comment you made some time back (around the 2008 Great Recession?) on your Oz blog, that the Australian central bank had done the best job of responding responsibly, followed by Canada, (and maybe GB?), but much superior to US Fed.
There really hadn’t been a significant case of a Parliamentary state having a bond crisis that it could not handle. Yes, government securities were first developed c.1171 and yes even Venice had had the odd partial default but the history to the 1780s strongly suggested it was an autocracy problem, not a Parliamentary state problem.
Austrian economists are notorious for over-predicting hyperinflation. While I like their historical approach, they tend to be too in love with their framings. In particular, they under-estimate compensating mechanisms. Von Mises and Hayek were correct in their economic calculation point, but wildly incorrect in the rate of consequences thereof precisely because, however dysfunctionally, the command economies came up with compensating mechanisms.
I was generally aware of Franklin's remark at the Convention, but did not recall the more negative aspects at the end. Clearly, we recognize that the Founder/Framers were deep students of human nature. Which is why I am somewhat surprised they did not explicitly provide for fiscal responsibility via some balanced budget criterion. Much of our problem seems to arise from the promise of something for nothing. Even those of us who know better will tend to fall for it (before we stop ourselves?).
It is fairly clear that Madison studied the Serene Republic of Venice pretty closely, it being the longest lasting Republic. It also, along with Genoa, invented the public bond, so functional deficit financing. The Dutch Republic and Great Britain built themselves as imperial Great Powers with deficit financing. Parliamentary states seemed to be able to manage deficit financing, mainly because the bondholders were, essentially, the Parliamentary class. Autocracies, not so much.
Thanks for mentioning Venice republic, an area of history where I have large gaps. So, yes, RESPONSIBLE deficit spending allows an economy to grow as large and as fast as the corresponding supporting wealth can be created. When things are going well (1600's explorations, 1990's internet boom?) this is great. But the Austrian school says things will always overheat, and then collapse. Plus we now know better than ever before that the appraisal of that wealth value still remains a largely subjective and fluid assessment, not so hard and fast as we are often led to believe.
On the parliamentary class as the more "responsible" bondholders, that triggered the following thoughts:
1) perhaps bond ownership should be limited to "qualified investors", which I understand are those with $100K or mor available, supposedly a more knowledgeable or experienced level of investor. [This may be the practical case already?]
2) maybe we should make 50% of our Congressmen's [and Parliament's?] pay in bonds, so they would remain closely interested in the country's investment quality. [Per recent news article, the Congress, President, VP, & SCOTUS (plus maybe all confirmed "officers of the US"?) still get paid during govt. shutdowns since they are identified in the Constitution [not sure about Senate confirmed military officers - they may not legally be "officers of the US" even if of the military?].
[see below]
3) all govt. DEFICIT spending should be done via private sector banks/ resources. Possibly with well defined leverage limits? Capital created out of thin air, but not the Treasury printing money. If the deficit amount is not available from the private banks, it does not get spent.
4) this still does not explain why Madison, et al., did not provide for more stringent financial guidance or controls -- were their potential fears assuaged with the example of GB?
5) (related to #4): is there an aspect of scale here, where the larger nations are more subject to taking excessive risks since it seems the tax payer base is still "so large" that errors can still be covered? I am reminded about a comment you made some time back (around the 2008 Great Recession?) on your Oz blog, that the Australian central bank had done the best job of responding responsibly, followed by Canada, (and maybe GB?), but much superior to US Fed.
There really hadn’t been a significant case of a Parliamentary state having a bond crisis that it could not handle. Yes, government securities were first developed c.1171 and yes even Venice had had the odd partial default but the history to the 1780s strongly suggested it was an autocracy problem, not a Parliamentary state problem.
https://www.npr.org/transcripts/689769991
Austrian economists are notorious for over-predicting hyperinflation. While I like their historical approach, they tend to be too in love with their framings. In particular, they under-estimate compensating mechanisms. Von Mises and Hayek were correct in their economic calculation point, but wildly incorrect in the rate of consequences thereof precisely because, however dysfunctionally, the command economies came up with compensating mechanisms.