The Government’s Insolvency
April 9, 2011 · Posted in Government
Insolvency in the voluntary market occurs when, due to a lack of long term profitability, an individual or a business are no longer able to meet monetary obligations to vendors, employees, creditors, etc. The outcome of insolvency is bankruptcy, a process in which the remaining factors of production are sold to people who mostly intend to use them in more profitable lines of production and in which remaining obligations are settled to the extent possible, based on the contractual and legal seniority of the debt obligations incurred.
Government bureaucrats, meanwhile, do not raise money by purchasing factors of production and selling the goods produced with them in voluntary transactions with voluntary buyers and sellers, respectively. Bureaucrats raise money via theft, that is by threatening and using aggression against those who do not pay the money they demand. This money is then distributed to those who invested in or voted for getting those bureaucrats in power.
To make a long story short: The government is now defaulting on its blood money commitments. But it’s not going not be a government default of the kind that people tend to think of. It’s not going to be a big announcement and proclamation of public debt insolvency.
It’s going to be a silent and creeping default. One that in fact has already been silently happening for years. When you get your SS statement once a year, does it nor plainly and obviously tell you that you will be getting less than what you paid in?
In any case, this is how I see the seniority in the realm of government expenses:
1. Public Debt Interest Payments
2. Military Spending
3. Domestic Law Enforcement (FBI, DEA, etc.)
6. Social Security
7. Unemployment & Welfare
8. Minor budget items such as education, roads, environment, etc.
So as the bankruptcy of the US and other governments progresses and as higher items start eating up more and more of the budget, I believe that they will begin to axe the lower seniority items and work their way up bit by bit when they have to. To be sure, this doesn’t mean that there will be no cuts at all in higher priority items, but I suspect them to remain rather low and unsubstantial in the bigger picture of things so long as other programs leave room to cut big time.
Naturally, they will likely discard those programs that actually provide some kinds of tangible benefits to voters and taxpayers before cutting spending on any of the higher level expenses to bureaucrats or to corporations who have bribed politicians into power via campaign donations. This is always the best way to try and keep people in the mindset that the government is actually needed for something.
It’ll be an interesting and spectacular mess to watch …