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    Cyprus! Government Spending, Debt and Government Confiscation of Private Property

    03/22/2013
    Democracy and Power 104: Future Debt Burden

    A government debt is a government claim against personal income and private property – an unpaid tax bill. —Hans F. Sennholz

    Excessive spending and inflicting debilitating debt is integral to all modern democracies. Why? Elected politicians institute programs for current voters and shift the debt to future workers, even the unborn. Social Security, Medicare, prescriptions drug benefits for seniors are prime examples in America.

    Cyprus!  Government Spending, Debt and Government Confiscation of Private Property

    Outraged Cypriots are yelling.  “No!  Don't steal from my bank account!”   The Cyprus government has attempted to take between 6 to 10% from every depositor's bank account.  Suddenly, Cypriots have realized that government debt is a claim against their private property.  Just as Sennholz opined many years ago:  A government debt is a government claim against personal income and private property – an unpaid tax bill.

    What did the politicians of Cyprus do wrong? 

    Answer:  The Cyprus government increased spending, on average, over 8% a year since the mid-1990's, which was substantially below their GDP growth and tax revenues.  So, their debt became an enormous problem and last July Dan Mitchell of the Cato Institute declaired Cyprus was bankrupt.  The spending surge of the Cyprus government is well depicted in Cato's graph

    Mitchell succinctly states the financial reason Cyprus was bankrupt.  Simply put, the fiscal policy variable that matters most is the growth of government. Cyprus got in trouble because the burden of government grew faster than the productive sector of the economy.  That’s the disease; deficits and debt are merely symptoms of the underlying problem.

    Mitchell correctly stated the fiscal disease.  However, there also exists an insidious political disease – universally politicians seek to elected to their positions of power.  Thus politicians of all nationalities – Greeks, Cypriots, Americans, etc – please current voters and push the debt onto future workers.

    Again, we need to look at the Cypriots screaming against the confiscation of their money – their wealth. 

    Did they protest when the government was lavishly spending on them – the 8% in crease in spending per year?  No.  

    Were the Cypriots aware of the increased government spending above the rate of tax revenues?  Most likely, the Cypriots were totally unaware.

    Were they aware that "A government debt is a government claim against personal income and private property – an unpaid tax bill"? Most people – whatever their nationality – don't have the time or inclination to follow and participate in issues of public finance.  No, most people of the world would not have seen the exploding debt fiasco and resulting fiscal and social disruptions.

    Did the Cypriots perceive their government would confiscate 6 to 10% of their wealth?  Never.

    Government debt is the scourge of all democratic (popularly elected) governments.  Politicians seek the favorable approval of active voters and push the debt burden upon future workers.  California, Greece, Illinois, New York, Harrisburg, the United States of America, and many more have systematically created big government debt.  

    Of course this begs the question:  Do Americans appreciate that excessive government spending is the disease?  Debt and bankruptcy are the symptoms?  That politicians are spending to pander for votes and personal power?  
     
    Answer:  Not enough Americans are aware.  Tragically, the cohort most impacted -young Americans  - are sadly unaware.