Mr. President, Your Default Rhetoric Is Just Not So.

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Barack Obama moments ago proclaimed that no one is advocating for default.

San Jose State University Assoc. Professor Jeffrey Rogers Hummel calls for exactly such a default:

But my major disagreement with Tyler [Cowen] and Arnold [Kling] is that I believe that a U.S. government default, rather than being “the end of the world,” could possibly be a good thing. I even advocated repudiating the national debt in a 1981 issue of CALIBER (the newsletter of the California Libertarian Party), long before predicting a default. My arguments were moral, economic, and political, and I would only soften them slightly today.

The moral argument for repudiation is easiest to follow although by itself says nothing about the practical results. Treasury securities represent a stream of future tax revenues, and investors have no more just claim to those returns than to any investment in a criminal enterprise. I favor total repudiation of all government debt for the same reason I favor abolition of slavery without compensation to slaveholders.

The economic argument depends on whether Ricardian Equivalence holds. Repudiating government debt eliminates future tax liabilities. To the extent that people correctly anticipate those liabilities, the value of private assets (including human capital) should rise over the long run by the same amount that the value of government securities falls. Thus, people will gain or lose depending how closely their wealth is associated with the State. If on the other hand, people underestimate their future tax liabilities, they suffer from a fiscal or “bond illusion” in which Treasury securities make them feel wealthier than they actually are. Debt repudiation will bring their expectations into closer alignment with reality, which should increase saving.

LVMI’s own Bob Murphy has made the same point:

There is a strong libertarian argument to be made that all tax revenues are stolen, and in that respect the government has no business “honoring” its debt at all.

Gary North has stated default will come, and that the vast majority of the people of the United States will benefit from it:

Liberty will receive a shot in the arm when this phrase provokes universal laughter: “The full faith and credit of the United States.” That day is fast approaching. The credit rating of the United States government will be marked down from AAA to AA. It will then be marked down to A. For every notch down that it falls, the national day of deliverance draws closer. American liberty is measured inversely to the credit rating of the United States government.

The President should hear from these voices and this rationale. I highly doubt he has even considered these arguments and would greatly benefit from a week at Mises University.

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