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A government debt is a government claim against personal income and private property – an unpaid tax bill. —Hans F. Sennholz
Excessive spending and debilitating debt are integral to all modern democracies. Why? Elected politicians institute programs for current voters and shift the debt to future workers, even the unborn.Similar to the City of Stockton - America is Bankrupt: Why and Who Pays?
“Government at every level lies about liabilities, from the halls of power in Washington to third-rate burgs such as Stockton … But as somebody once said, “When the president does it, that means it isn’t illegal.”
- Kevin Williamson – National Review
Nearly every democratically-elected government has compounding financial problems. Federal, state and municipal entities cannot pay their promised obligations. Dangerously, democracies have three inherent flaws:
1. Elected politicians invariably bestow benefits (lavish healthcare, pensions and more) on current voters and push the costs on future workers.
2. The public is ignorant of the nefarious machinations of politicians and special-interest groups, particularly government unions.
3. Politicians are not punished for bad policies and decisions.
A bankruptcy judge observed in a recent ruling the unfunded government pensions that are wrecking havoc upon the citizens of Stockton, California: “multi-decade, largely invisible pattern of above-market compensation for public employees.”
The judge's findings highlight the stated inherent flaws. In the past, Stockton politicians bestowed lavish pensions on their most powerful supporters – government employees. The public was ignorant of the invisible patterns of compensation, and the decision-makers (former politicians) were not penalized for bad decisions and policies.
So, who pays? The citizens of Stockton are already damaged by past decisions and present debt. For example the police force was cut by 25% and crime has increased.
Who will ultimately pay? A bankruptcy judge will decide. Basically, there are four solutions; municipal bond holders are wiped out (which will not be enough to completely solve the problem), pension benefits are reduced, taxes are increased, or a combination of the three.
If pensions are reduced, loyal retirees will be defrauded by policies and decisions of (mostly) former politicians. If taxes are increased to pay promised pensions, the residents of Stockton are victims of bad decisions by (mostly) retired politicians. Citizens of democratically elected governments be warned, Stockton is not an isolated case. Steven Malanga of the Manhattan Institute asserts that states and local governments have over $7 tillion of under funded promised pension benefits. Additionally, the federal government must reduce benefits or increase taxes to pay for Social Security and Medicare.
Again, unfunded government promises are integral to all democracies – Greece, California, Ireland, Illinois, the USA and most democracies. Perilously, government debt is the issue of our time, and must be addressed at every level of government – national, state, and municipal. Structural restraints on government must be imposed. Legislative and constitutional changes must occur.
1. Debt limits must be imposed. For example, Poland has a debt to GDP limit of 60%. This should be considered for the federal government. [Read: Government Debt - Does American Need a Constitutionally Defined Debt Limit?]
2. Politicians voting for policies that exceed legally defined debt limits must be financially liable for the debt burden they create.
These changes will only occur when citizens become aware of the immoral burden elected politicians have imposed upon future generations.