The U.S. National Debt is now climbing upwards of $39 trillion . . . although it’s not impossible to find some experts who claim the figure is more like $100 trillion due to unbooked estimates for Social Security and Medicare. Of course, whether we’re talking $39 trillion or $100 trillion — yes, that’s trillion — it’s in the realm of the surreal, not the real. That’s a lot of money.
Amounts like that simply don’t mean anything to most people because they are so cosmically huge. It’s rather like the concept of “light year” — the distance light travels in a year at the official velocity of 186,000 miles per second. That’s 5,865,696,000,000 miles in case you’re counting, or a little under 5.9 trillion miles (5.88 trillion if you took the easy way out and asked AI instead of calculating it yourself).
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| Harold G. Moulton |
In any event, the question arises how that can or even if it could be repaid. In “pure” Keynesian economics, as if there was such a thing, given all the mathematical and logical errors in the Keynesian system (see, e.g., “That Krazy Keynesian Math”), the size of the national debt is irrelevant because it is money we owe ourselves . . . a rather ludicrous theory Harold G. Moulton utterly demolished in The New Philosophy of Public Debt (1943), and which in any event ignores the $9.4 trillion held by foreign countries.
So, how can — or could — this somewhat gargantuan debt be repaid? Believe it or not, it’s not impossible, just improbable . . . unless doing so is made a national priority.
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| Otto von Bismarck |
That is what happened in the 1870s after Prussia imposed an indemnity on France following the Franco-Prussian War. Intended to break France economically forever and make certain Prussia would become top dog (or hund) in Europe after forcing the unification of the Germanies on its terms, the U.S. $1 billion — U.S. $26.79 billion in current dollars (roughly 25% of French GDP at the time) — was repaid in full in two and a half years (or a rate of 10% of French GDP per year), much to Otto von Bismarck’s astonishment.
Admittedly, circumstances favored France to some extent. One, France had Louis Pasteur, whose discoveries alone in combating anthrax and saving the French wine and silk industries and a few other things were — in the opinion of some experts — alone enough to pay the entire indemnity.
It also didn’t hurt that the nouveau riche in the U.S. and other countries were demanding French goods above all others as the only acceptable luxury goods. The market for French goods was booming.
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| Louis Pasteur |
Then there was the fact Bismarck didn’t understand money. He thought gold and silver were money instead of just an expensive vehicle for the currency. He agreed to accept payment of the indemnity in French silver five-franc pieces at face value. BIG mistake.
First, the dollar-size coins were “subsidiary” coinage and held less than the face value in silver, anyway. The French were paying less than five francs to produce each five-franc piece and paying them to Germany at a full five francs. Then, world production of silver was generating a virtual tsunami of silver, many countries had demonitzed silver, and the British had just stopped buying huge quantities to finance the development of India, releasing mega-tons of silver, further depressing the price.
The French were buying silver cheap. They then minted the bargain silver into five-franc pieces and shipped them off to Germany. Not needing so much silver, Germany melted the coins and dumped the silver on the world market at fire sale prices. This further depressed the price of silver . . . and the French were buying it up again, minting it into five-franc pieces . . .
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| les Boches |
In the opinion of some people, however, what really provided the cash to repay the indemnity was the fact key French industries — the luxury industries saved by Pasteur’s discoveries, such as wine, silk, cheese, and wool — were broadly owned, often family owned or cooperative enterprises, and virtually every French man, woman, and child made it a personal priority and commitment to redeem the honor of France after the disgrace by les Boches and Chleuh, and produce as much as possible to generate the necessary tax revenue.
This was more than significant, because according to AI, cooperatives were a substantial and growing feature of the French economy in the late nineteenth century. They emerged as a major response to the industrial revolution, economic crises, and the labor movement. While never “big business” compared to the capitalist enterprises of the Robber Baron era, they commanded considerable attention and support from the working class and intellectuals.
Marianne
Nineteenth century French cooperatives helped set the stage for Marianne’s acceptance of modern consumer and worker cooperatives and, especially, the Employee Stock Ownership Plan (ESOP) invented by Louis Kelso. ESOPs are very common and increasingly popular today in France, particularly within the startup ecosystem, where they are used to attract and retain talent. The BSPCE (Bons de souscription de parts de créateur d’entreprise) is the most popular type of ESOP for startups, as it offers favorable tax treatment for employees — which (combined with being championed by Senator Russell Long of Louisiana . . . a former French colony . . .) ensured the success of the ESOP in the United States.
So, how does this compare with the $39 trillion debt burden currently faced by the United States? To begin, according to AI, in 1870 the United States had a higher GDP per capita (around $2,457 in 1990 international dollars) compared to France (around $1,886 in 1990 international dollars). This argues that in 1870, the U.S. economy was roughly one and a third larger than that of France. As for today, again according to AI, the U.S. economy is approximately nine times that of France.
Now, the indemnity France paid was about 25% of GDP at the time. The U.S. national debt is currently upwards of 125% of GDP. Given that the U.S. economy is currently about 9 times that of France, however, it should be much “easier” (as in “less crushingly difficult”) for the U.S. to generate annual debt repayment of 10% of GDP eventually (as in about twenty or thirty years) . . . IF the system is restructured to duplicate as far as possible the strengths France enjoyed in the 1870s and an all-out effort is made to repay the debt.
It is possible this might be done within half a century if a program such as the Economic Democracy Act is implemented immediately — a generation and a half (thirty years) to get the program up and running, and then another decade to pay down a tenth of the debt each year. And we aren’t even considering the phenomenal increase in productive power and capacity provided by advancing technology such as AI — so long as that technology is broadly owned, or the reduction in federal spending as ordinary people can meet basic needs and provide for retirement without having to rely on government entitlements and redistribution.
Of course we are making some assumptions. These include but are not limited to:
· ALL new capital formation — and we do mean ALL) is financed with “future savings,” that is, by monetizing the projected stream of profits from the newly formed capital and using the new money to finance the capital.
· A significant amount of replacement capital is financed with future savings as well.
· ALL new capital — and, again, we do mean ALL, including AI — and a significant of replacement capital is broadly owned, thereby creating the future consumption power essential to justify and pay for the new capital.
· ALL new money — or at least as much as possible as monetization of government deficits is phased out — is backed by private sector hard assets and not government debt.
· ALL taxation is merged into a single income tax. No sales taxes, property taxes, tariffs, sin taxes, or anything else. Just an income tax (frankly, ALL taxes are “income taxes,” for what else are you going to use to pay the tax?).
· ALL dividends are made tax deductible at the corporate level and are treated as ordinary income at the personal level unless used to purchase “full dividend payout” equity shares up to a level of capital self-sufficiency, in which case taxes are deferred until the shares are sold.
· ALL income is taxed the same way: a single rate above a meaningful exemption, say, $50,000 per non-dependent and $25,000 per dependent. A “typical” family of four which jointly files as a family (an innovation similar to the current joint filing allowed married couples) would pay no tax until aggregate income exceeded $150,000.
· Social Security and other entitlements are made “need based” and the special FICA tax is merged into the general tax rate (also solving the projected bankruptcy of the system).
There are more assumptions — you can find them in the Economic Democracy Act (EDA) — but (at least in our opinion) it is entirely possible to get rid of a backbreaking debt, even one that seems colossal — if there is a commitment and a dedicated effort to do so. Simply by adopting the EDA, several things should happen, although it might take a few years for the full effects to be realized:
· Full employment will occur within five to seven years of adopting the EDA as the increased economic activity generates a much higher demand for labor.
· Compensation will rise in response to the relative scarcity of labor, not because of union agitation or government fiat, but because increases come from the bottom line without increasing costs.
· Profits and incomes will increase at the same time the price level declines due to increased production and demand.
· The dollar will strengthen, but the declining price level for domestic production will offset the competitive advantage of cheap imports.
· Government spending decreases radically as full employment and EDA income take over the need for redistribution, entitlements, and welfare.
· The tax base is broadened as more people have income to be taxed.
· Economic growth increases rapidly due to using future savings instead of retained earnings for new capital investment, freeing great amounts of cash paid out as dividends for consumption.
Yes, these assumptions and projections are very broad and it’s possible to drive a rather large truck through them — but the concept is sound, and deserves a rigorous study to determine feasibility . . . and when faced with nearly $40 trillion of unserviceable debt, do we really have time to waste or any better idea?
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