The National Debt

[Nate the Great]

So I was browsing Wikipedia trying to get a handle on an issue that continually irks me, the National Debt.

http://en.wikipedia.org/wiki/United_States_public_debt

It still doesn't answer the fundamental questions. Here's a plea to any economic majors out there.

1. So for years they've wanted us to buy bonds to "relieve the debt," with the promise that we'll get the money back with interest later. How does this help anyone? It sounds like the government is just slowing their descent down the spiralling vortex.
2. Why in blue blazes can the Mint just print money willy-nilly whenever they feel like it? What's wrong with all of the governments saying "okay, the total worth of everything in the world is now fixed at X billion dollars/Euros/yen/whatever."
3. Why awe we still spending billions of dollars on foreign aid? Actually, why did we start? Shouldn't aid be spent on people who will eventually be real taxpayers?

[Chancellor Valium]

Ehh. Over here, we're so deep the IMF has refused to lend any more money to our government. But then, this is an oeconomy run by a man who sells off gold reserves when gold is at an all-time low price...While the Euro-tunnel project is so far in debt that if the bank tried to collect it would end up being shut down (I don't understand how, but a friend who understands economics told me.)

[Nate the Great]

IMF? Euro-tunnel?

The joke I'd really like to use is "did I forget to feed my Babel Fish again?" but as Babel Fish feed off of the wearer's brain energy, that really doesn't work. Drat.

[Burt]

Originally Posted by Chancellor Valium

Ehh. Over here, we're so deep the IMF has refused to lend any more money to our government. But then, this is an oeconomy run by a man who sells off gold reserves when gold is at an all-time low price...While the Euro-tunnel project is so far in debt that if the bank tried to collect it would end up being shut down (I don't understand how, but a friend who understands economics told me.)

I keep hearing this too. How the hell can it be? It's a flipping tunnel under the sea for crying out loud! How exacty are they running this thing? It's always busy, must make money. Yet is in debt. Amazing.
Less concerned about the national debt though. I think it's more just 'something that's there but means nothing to us' type thing. Like Greenland. I did read an amusing bit about the USA's debt in a Bill Bryson book (I think it was Notes from a big country)
Seems you guys are screwed.

[Gatac]

It's generally accepted that a modern government will run up serious debts. I think the rule of thumb is that new debts shouldn't be much above 1% of the gross domestic product, but of course the US has managed to collect a sizeable amount of foreign debt. The real problem starts when your new debts are outpaced by the interest you have to pay on your old debts, which cuts into the "real" operating budget of your country. Unless you find new ways to make money (like, say, tax air usage) or reduce spending (like cutting foreign aid), it means that you're basically screwed and doomed to a slow death. A lot of countries (among them the US, Japan and Germany) already have to deal with this and think of ways to stop it.

As for your numbered questions:

1) Yep, bonds are a delaying action. It's basically you granting the state a loan. If it works out, you win money. If it doesn't...you'll be the proud owner of nice-looking certificates. Of course it's a loss for the state in the long run, but often, you need money now and are willing to make yourself believe that times will be better when the bond is due. Ideally, everyone who agreed to offer the bonds and spent the money is already out of office when the whole thing is due...

2) Because total worth is not fixed. For example, until the commercial exploitation of music, it was all about the performers being paid to play for a small audience. With mechanical music reproduction, they basically created a whole new market. Other economic factors are being destroyed as we speak. (Commercial fishing could die out in our lifetimes if we keep it up like now.)

Also, since debts are often valued in your own currency, it may make sense for the government to induce inflation, which lowers the real worth of all debts and capital in general by making the currency worth less. Of course, this often leads into a death spiral of hyperinflation, and so most countries try to steer far away from that.

3) Foreign aid is a tricky little bit. On the one hand, we are embarking on what can be called systematic exploitation of third-world countries. For example, the USA has tariffs on manufactured goods from third-world countries - this, in effect, pressures those nations to only export raw materials, which in turn prevents them from establishing a manufacturing base that would allow them to climb out of their current hole. So, foreign aid does have some justification, even if it's only a drop of water on a hot stone. On the other hand, foreign aid is usually swallowed by the governments, which leads to high corruption. The only sensible option seems to be to allow those countries to build their own economy. (Red Cross food shipments undercut local farmers! Disaster relief is not the same as feeding an entire country constantly...)

Despite all the negative things I've said here, foreign aid is important and has helped literally billions of people. The thing is, it also has important drawbacks that need to be understood.

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I'm not an economist, and if you dig deeper into the whole topic, you'll find the whole situation is exceedingly complex. I'm just telling it how I see it. I encourage everyone who's interested to take their own look at the affair and come to their own conclusions.

Gatac

[Nate the Great]

Call me a cynic, but the fact that spending has to go down seems to be the crux of why this isn't that simple of a problem. How does the government cut spending? Eliminate entire programs that are staffed by people depending on the income.

Sometimes I wonder if the solution couldn't be as simple as having rich people pay a higher percentage of their income as taxes. Face facts, Bill Gates could live on ten percent of his income about a million times easier than we could live on ten percent of ours.

[Gatac]

People always advocate new taxes - for other people.

...

Sorry, it's just been my observation that it's often "Tax the rich!" when this comes up, and this leads me to ask how that can be justified. The rich are already in the highest tax bracket, and the tax percentage means that they in effect already subsidize people who earn less. After all, on the axiom that you don't want to spend much more money on exactly tracking who does what, it can be assumed that all people will use roughly the same amount of resources and services as provided by the state, so the "fair" solution would be to take the total costs of the government divided by total taxeable population and let everyone pay the same amount to cover it. Of course, then you get the problem that 5000 bucks (figure grabbed from thin air) is peanuts for some and unpayable for others. From that perspective, most modern tax systems aren't just unfair, but massively discriminate against rich people. Even if everyone was paying the same percentage, those with more income pay more money for the same services. Add the higher percentage of taxes for rich people and it just shifts the burden more.

Taxes aren't fair. The best you can do is try to spread the burden in a way that everyone can bear their part.

A radical solution would be to give everyone a certain lump sum of "allowed income" and keep everything above that as tax, but that is a) massively unfair b) against the spirit of capitalism and free commerce c) never going to be passed as law by any government, ever. (Well, I suppose you could pass it, but good luck keeping the big money inside your borders.)

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Rather than looking for innovative ways to tax the rich, how about looking into ways to close the gap between poor and rich? That's the real problem, imho.

Gatac