Robert Morris Speaks on the Debt

“While I spoke only once during the first Constitutional Convention, it was not because of a dearth of ideas but rather because, as a merchant, I felt uncomfortable making law.  My work in assuring efficiency in the government and in establishing the first government incorporated bank speaks to my capability in finances.  And, my subsequent experience with moving from being one of the richest men in the colonies to being cast into debtor’s prison (1798) gives me, I think, some credibility in addressing the topic of debt.

“Alexander Hamilton spent a great deal of time discussing the notion of a National Debt with many of us.  I think there was pretty general agreement that debt is a necessity for the Nation to function in a reasonable manner.  Yet we also agree that large debt is an evil in the long term.  Hamilton’s solution was to establish an objective for the debt to be discharged in 30 years.  This seems pretty reasonable, most home mortgages today have a thirty year term and economic cycles generally seem to be over in less than 30 years.  Wars today seem to be considerably shorter than 30 years, thus the reasons for a nation to incur debt (i.e. extraordinary expenses) do not justify a constantly increasing debt.

Looking at the debt of the United States, we see an exponential growth in the dollar amount   (as shown in the chart) and a steady rise in debt as a percent of the Gross Domestic Product with the percentage doubling during the period 1981 until today.  Even the most optimistic among us must see that this trend will lead to the collapse of the US as we know it.

Debt itself is equivalent to an extremely regressive form of taxation because it moves funds primarily from the middle class (who pays most of the taxes) to the wealthy (who own most of the debt and thereby get most of the interest on the debt.)  This situation is highly undesirable and an unfair burden on the citizens who can least afford it.

As I touched upon, there are only a few reasons that justify the nation incurring debt, and none of these relate to the normal operation of the government.  National level catastrophes, wars, and abnormal economic downturns are examples (and possibly the only examples) of when incurring debt is justified.  This does not seem to be a particularly difficult concept for the majority to accept, thus it seems that something in the system is broken and therefore causes the situation we have today, namely runaway debt.

It is interesting that few of today’s politicians ever discuss debt, but rather brag about their reduction of the deficit (i.e. the increase of the debt.)  One of the first things that needs to happen is for people to insist that the debt is the subject of discussion rather than the political slight-of-hand practiced today.

The fundamental cause of the debt is, of course, the fact that the nation spends more than it takes in.  The current system rewards politicians that get programs and projects passed for their constituents. Unfortunately, many of these programs are either underfunded or funded only for the current budget period, leaving a stream of future commitments.  There are two issues that need to be addressed to fix this problem: legislation for future years does not immediately impact the budget in those future years, and most legislation lasts forever unless there is a specific bill to stop it.

If a bill is proposed, it must have a specific end (sunset) date.  If the legislators want it to continue beyond that date, they can adopt new legislation at that time.  This is particularly important for government agencies and departments, which seem to not only take on life but often, when supposedly killed, rise like zombies from the grave.  With a sunset clause in every bill, the time period of the bill is known and the budget implications also can be reasonably estimated.  At the time the bill is adopted, the entire impact to future budgets should be identified and funded.  If, over time, revisions of the budgetary impacts arise, the future budgetary implications should become commitments.  The second part of making this work is that every piece of routine legislation must identify a funding source for the entire life of the legislation.  Thus, for all ordinary government actions, the revenues and expenses must match.  No normal government action should occur without costs and the funds to pay those costs included.

In addition, additional revenue will likely be required to service the debt.  These revenues should be specifically tagged to pay off the debt in some reasonable period, say Hamilton’s 30 years. 

Any such system as proposed here will inevitably have years of surplus and a key issue we argued over in the early days of the nation was what to do with budget surpluses if there was no debt.  Government budget surpluses do not move us in the direction of wealth creation unless they are immediately put to use.  But, putting them to use has historically meant the Federal government getting into actions which we have said should not be within its purview.  The government entities which we envisaged having responsibility for things which are typically accomplished with surpluses, infrastructure improvements, etc. are the States.  So a logical thing to do with surpluses, after the debt is repaid, is to return the surplus to the State in proportion to the States population.  The States should be free to spend these monies as they wish, flow them to local governments, or return them to their citizens.