As the debate about the debt ceiling winds its way through extraordinary twists and turns, it might be time for an economist to remain silent on the matter.
You see, we economists rely on the belief that the common masses are uncommonly rational. Applying that assumption works fine in economics, but not too well in political prognostication, which is where all the wrangling now takes place. But, as a columnist, I really can’t pass on the chance to again write about the debt ceiling, so I again put pen to paper.
This week, I’ve found one of the more interesting revelations about the debt debate. It involves a surprisingly thoughtful economic policy recommendation from Rep. Ron Paul, R-Texas. He recently argued that, to reduce the federal debt, the Federal Reserve System simply wipe out the roughly $1.6 billion in U.S. bonds it now holds. These holdings, which account for a tad bit over 11 percent of our total debt, are bonds the U.S. government owes itself (in the form of the Federal Reserve).
The elimination of this would have no real impact on the operations of the Fed, which, despite its treasure trove of significant economic research and critical economic function, has a modest budget. It returns most of its earnings to the U.S. government. The destruction of this debt would have little practical effect on the money supply and probably no real effect other than cutting our debt. So Paul has come up with an earnestly practical idea—not a common characteristic of Libertarians.
But what is most amazing isn’t his financial acumen. What stuns me about his proposal is who else proposed the idea before him. You see, Paul, scion of the anti-government crowd, is conjuring none other than Woody Guthrie, a guitar-enabled philosopher not widely remembered for his contempt for activist government.
Writing in 1939, the folk humorist opined that, “The national debt is one thing I can’t figger out. I heard a senator on a radio a-saying that we owed somebody 15 jillion dollars. If the nation is the government and the government is the people, then I guess that means the people owes the people. That means I owe me and you owe you, and I forget the regular fee, but if I owe myself something, I would be willing to just call it off rather than have senators argue about it.”
Now, I have been given to observe many a wondrous and unusual thing over the course of my life, but the thought of Ron Paul and Woody Guthrie cozying up on fiscal policy leaves me virtually speechless.
Maybe it is something in the water in East Texas and Oklahoma that causes these two men to inadvertently think alike. Maybe it is the heat that got to the both of them. But, whatever it is, when a Libertarian and Socialist start agreeing about something, the rest of us ought to listen to them. They are either crazy or right.•
Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at firstname.lastname@example.org.