Public Debt and the Common Good

Philosophical and Institutional Implications of Fiscal Imbalance

James Odom

• Publisher: Routledge
• Year: 2018
• ISBN:
  9780429866395
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

The American national debt stands at $20.49 trillion as of January 2018, or roughly $63, 000 for every person in the United States. The national debt has grown six-fold in the past 25 years, and borrowing only has accelerated in recent administrations. What are the factors driving such unrestrained borrowing? Is American fiscal policy different now than in an earlier era? Is there a moral dimension to public debt and, if so, how can that dimension be measured?

Public Debt and the Common Good addresses these and other questions by looking to the fiscal policy of the American states. Drawing on classical themes and the longest quantitative review of state debt in the literature, James Odom expertly integrates institutional analysis with dimensions of culture to define the parameters of political freedom in a theoretically coherent way. In doing so, Odom argues that centralization and injustice, or the incapacity for the common good, can help explain state indebtedness.

Contributing to ongoing scholarly debates on public debt theory, this book will be of interest to students, scholars, and practitioners who work at the intersection of political philosophy and economics, as well as those who specialize in state public policy, state politics, and federalism more generally.

1 Introduction

Credit is morality, and the exact measure of the soundness of the social state.

— Junius Tracts, 1844

Money is imbued with moral meaning because, as the saying goes, money is condensed life. Money is food, shelter, clothing, and the means to other material goods that fill a human life beyond subsistence. As Michael Sandel has provided an important, recent reminder of ancient teaching, money cannot place a value on all things and can itself obscure a view of what is truly important.¹ Still, money is the means by which physical life is sustained and for that reason is of great significance.

If morality pertains to the proper manner of living, then credit does indeed have a moral dimension. When credit is taken, the means of living of one person are entrusted to another, and a pledge to return those means, usually with compensation in the form of interest, is received in turn. Not to honor the commitment to repay is to take the sustenance for life away. Hence, the debtor’s reliability is revealed by his handling of the money entrusted, and his character is estimated by his creditworthiness.

Notions of reliability, faithfulness, and character may come to mind more quickly when assessing an individual borrower, particularly if one is the lender and relying on that borrower to repay. These concepts extend beyond interpersonal credit arrangements, however, to the fiscal behavior of nations. National currencies are issued and sustained with the full faith and credit of those governments. Societies have a national character, all that goes under the general and often nebulous word “culture.” Furthermore, how nations handle their public accounts pertains to their national character. In “The Crisis of the Tax State,” Schumpeter writes:

The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare—all this and more is written in its fiscal history, stripped of all phrases. He who knows how to listen to its message here discerns the thunder of world history more clearly than anywhere else.²

As with the individual, the handling of money by national governments reveals what truly animates that polity, its priorities and objectives, and, it will be argued, its moral character, or capacity for justice.

The American national debt stands at $20.49 trillion as of January 2018, or roughly $63,000 for every person in the United States.³ A fiscal challenge of this magnitude has been most of a century in the making, under Republican and Democratic administrations and congresses. Norms of budget balance shared broadly by both parties came to be replaced by norms of deficit financing. For most of the postwar era, Democrats consistently have pushed for the expansion of social programs, and Republicans have favored tax cuts without commensurate spending reductions. The net result of both these enduring party objectives has been the sustained and, more recently, rapidly accelerating growth of the national debt under the Bush, Obama, and Trump administrations.

The ability to repay official debt totals is complicated by the question of currency valuation and unfunded liabilities of various social programs. “Quantitative easing,” much of which has been used to finance new government debt since the Great Recession of 2008, has not been accompanied by inflation, but it is not a foregone conclusion that the dollar’s value will hold, especially if political exigencies undermine the independence of the Fed. Alberto Giovannini discusses the dangers of central banks being responsible for the simultaneous management of monetary and debt policy.⁴ In addition, the magnitude of demands on fiscal coffers is understated by social program liabilities that are not counted in official debt totals.

Rising debt levels have been accompanied with diminished political will to curtail spending. Debt ceilings are repeatedly increased, and significant spending reductions forestalled. President Obama did not mention the national debt in his last State of the Union address (although he did mention reducing the deficit once), and President Trump did not mention it in his first.

To be clear, public debt is not inherently immoral, or, to use a more theoretically durable term, “unjust.” Public debt has financed many of the social improvements underlying the modern economy that sustains a high standard of living in America. For these reasons and others, economists and social scientists may not be among the most eager to discuss the national debt in moral terms. The injustice of public debt is a persistent theme in the popular debate, however, and this theme can be better grounded in scholarship.

Perhaps the phrase with connotations of justice most often heard from elected officials and others concerned with the national debt is, “Mortgaging our children’s future.” In this description of national debt is implicit the fundamental elements of a credit relationship described above, but between generations of Americans instead of individual persons. Public borrowing is taking the means of livelihood of younger and future generations of Americans (not to mention overseas investors who buy U.S. debt instruments), and, to the extent these creditors are not repaid, breaking faith with them or treating them unjustly. The increasingly tenuous fiscal position of the federal government indicates that such a breach of faith is occurring. On its current course, the fiscal trajectory of the U.S. is not sustainable, and national indebtedness has become an injustice threatening the country’s future well-being.

A Note on Terminology

Defining terminology is important for any argument. Gary Lawson’s discussion of a widely used economic term, “social efficiency,” is illustrative.⁵ After reviewing different meanings for social efficiency, he shows that all such definitions are deficient. His conclusion, entitled “Enough is Enough,” cautions against overstating a term’s precision in scholarly research. Keeping Lawson’s advice in mind, “unsustainable” is a term that already has been used and is open to definitional problems. What does it mean to say that public debt is unsustainable? A scholarly answer will not be ventured to this question, for “efficiency’s” sake but also because it is not essential to the analysis herein, which is focused more on factors that contribute to public debt rather than defining a tipping point of insolvency.

It is central to this book, however, that public debt has become unjust. To be sure, the injustice of public debt is related to its unsustainability, but the bulk of this analysis is intended, again, to advance an understanding of unsustainability grounded in mores and institutions rather than cumulative debt totals that pass a point of no return. Regarding unsustainability, it will be enough to say that the national debt cannot continue to increase almost six-fold every 25 years, which was the case from 1990 to 2015 (from $3.23 to $18.15 trillion nominal dollars).⁶ What justice is and what transgresses it in terms of indebtedness will be covered in some detail, however, and a quantitative measurement of injustice in the American states will be proposed, integrated into statistical modeling, and evaluated for possible meaning.

Methodological Perspective

One approach to studying American politics is to review policy at the national level over time, as Sidney Milkis does in The President and the Parties.⁷ His account is not focused on debt per se, but on the expanding scope of the national government and how that expansion at once reflects and influences the character of the American people, a nation he finds more self-interested and less communal with a mature administrative state driven by parochial concerns rather than a sense of the national interest.

Another approach, the one used here, is to step back from policy at the federal level and evaluate the American states. Alexis de Tocqueville, perhaps the greatest commentator on American democracy, took this approach. He believed that the character of the national government could be discerned best by looking at the American states.⁸ From a quantitative standpoint, a review of the states has the obvious benefit of comparative analysis that a review of the federal government in isolation does not. Because the states comprise one country, inferences can be drawn about debt in an American context to inform what may be happening at the federal level. The methodology and focus of this analysis is thus different than Milkis’, but similar themes are reiterated relating to the effect of changing fiscal norms and centralization.

Political Culture

The American federal system was a unique creation of the Founders to address the immediate political exigencies of forming a national government and the longer-term challenges of governing a large republic. The national government would be supreme in its sphere of enumerated powers, and the states would retain those powers not delegated. The centralization of power at the national level has been a prominent feature of American federalism since the Founding, but the states still retain significant discretion on a number of policy fronts, to include budgeting. This has allowed the states to take different paths in how they handle fiscal affairs.

In addition to the institutional features of fiscal independence, the states have different socioeconomic traits that can be incorporated into an analysis of public debt levels. The study of state “culture” has been an enduring component of federalism scholarship since Daniel J. Elazar’s seminal work American Federalism: A View From the States.⁹ Elazar argues that the marketplace and the commonwealth are the major paradigms by which Americans seek to integrate the two central issues of civil society: the use of power and the attainment of justice. These paradigms are expressed in three essential national subcultures— individualistic, moralistic, and traditionalistic—that influence how a state perceives the purpose of government, determines who will participate in politics, and conducts actual government operations.¹⁰

The individualistic culture views politics as a marketplace and government as a utilitarian agent to meet the needs of citizens. Elazar states,

A government need not have any direct concern with questions of the good society, except insofar as it may be used to advance some common conception of the good society formulated outside the political arena just as it serves other functions.¹¹

Government intervention in society is limited and designed to encourage private initiative. Bureaucracy is viewed in ambivalent terms: negatively, it interferes with the personal relationships that drive politics in an individualistic culture, or, positively, it increases efficiency that mirrors the marketplace. Politics is viewed in non-ideological terms as the domain of professionals who must traffic in a certain degree of corruption that necessarily attends the work of government. As long as that corruption does not become excessive, those political professionals can advance without public censure. In the absence of other unifying forces, political parties are the primary means of organizing political activity in individualistic cultures and thus maintain a high degree of cohesiveness.¹²

The moralistic culture views politics as “the search for the good society—a struggle for power, it is true, but also an effort to exercise power for the betterment of the commonwealth.”¹³ Non-governmental activity is favored to improve society, but government itself is a positive instrument for social change and more willing to intervene on economic and social policy. Politics can be seen in more ideological terms that diminishes the importance of party allegiance. Political participation is open to all and should be pursued with public instead of individual interests in mind. As such, there is much less tolerance for corruption in politics. Bureaucracy can be viewed negatively as conflicting with the communitarian emphasis on local politics often present in moralistic cultures or positively as a means to enhance government neutrality.¹⁴

The traditionalistic culture is organized around the dominance of political elites. Elazar writes,

It reflects an older, precommercial attitude that accepts a substantially hierarchical society as part of the ordered nature of things, authorizing and expecting those at the top of ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright page
• Table of Contents
• List of Figures
• List of Tables
• 1 Introduction
• 2 Justice as the Common Good
• 3 Of Keynes, Crisis, and Credit: An Overview of American Fiscal Trends in the Twentieth Century
• 4 Modeling Injustice
• 5 Interpreting Injustice
• 6 Progressivism and the Rise of the American Administrative State
• 7 Conclusion
• Appendix: Data Sources
• Index