Vicious Virtues

Writing in Poor Richard's Almanack, Ben Franklin declared "Rather go to bed supperless than rise in debt."

What a wonderful representation of what are often called the  "Victorian virtues" (though the Almanack was printed prior to the reign of Queen Victoria). Debt is morally repulsive, not only to be personally avoided, but is a sin to pass on to one's children.If we could only return to this ideal, the future, the character, and the dignity of America would be restored.

The only problem with this, however, is that it's nonsense. There is nothing morally odious about debt in and of itself, or about borrowing for the future.

Consider Ben Franklin's aphorism. Which seems better: to go to bed hungry and wake up weak and unable to work as well, or to borrow against tomorrow's income so that you can eat and wake up strong enough to work? Suppose that if you eat one loaf of bread you can work enough to earn two loaves of bread and that right now you are hungry and have no bread. What is the moral dilemma about borrowing enough money to buy one loaf of bread, eating it, and then working enough to earn two loaves and paying back the debt? If debt is morally wrong then you shouldn't borrow even if you can pay it back. So it must be nonsense that debt is morally wrong in and of itself.

Now consider a working parent who has a child. This parent currently has a business which produces $100 a year worth of income, and he will pass on this business to his child next year. Now this father has the opportunity to invest $200 in improving his business and once he does the business will produce $200 a year worth of income. This parent doesn't have the money but can borrow it and has to repay the loan over 2 years, paying half each year. This means that the second payment will be made by his child, and so he is borrowing from his kid. Let's compare taking the loan and not taking the loan:

Year:                               1          2          3        4   ...
Income without loan:     $100    $100   $100   $100 ...
Income with loan:         $100*   $100*    $200   $200 ...
*$200 income produced - $100 loan repayment =$100 income

So in year 2 when the child takes over the business he is no worse off than had the father not taken the loan out, but every year thereafter he is better off. Clearly the parent should take out the loan, even though the child has to pay some of it back, because the loan is used to make the child richer. But if it morally wrong to borrow from our kids, from the future, then this parent should not borrow and not make his child richer. Is that virtue?

It should be clear that there is nothing morally wrong about debt or borrowing from the future. The issue is whether the debt is being used toward something productive (earning more bread, making your child richer). It's not a moral question, its a practical one. 

In truth, the fact that we have borrowing and debt is a sign of virtue: people are willing to lend others the resources necessary to improve. To be morally against debt is to tell people that even if they could do better, it is better that they don't. "Yes, you could borrow some food today and pay it back tomorrow, but you'd be a better person if you didn't." Is this virtuous?

Yet this is the basis on which we are told by some that governments shouldn't borrow, because it is morally wrong. It is perfectly reasonable to argue that governments shouldn't borrow money because they don't put them to productive purposes, that they will borrow $100 and only produce $90. That's fine point to make and one I think is very right. But that means the issues isn't the morality of the debt but the productivity of it.

The argument should be about what the government does with money it borrows, not whether or not it is moral for it to borrow. If the argument becomes "debt is morally wrong" then we have turned virtue into something vicious. We have consigned people to whatever their present circumstances are and nothing more.

Constituting God

Slogging through Glenn Beck's book Broke I have finally reached the chapter I knew would be there. Yes, I have finally reached the part where Glenn Beck talks about the need for a religious revival in America. This conclusion stems, oh so rationally, from the fact (FACT!) that our rights comes from God.

That's part of the Constitution you know.

Not only that, it should be obvious that our rights come from God. This much should be evident from the long history of the bible.

Who can forget wise Prime Minister David?
Or the republican reign of President Solomon?
But this is a Judeo-Christian land, so let us not forget the more gentile persuasion, such as Jesus's oft quoted remark "Render unto the Premier that is which is the Premier's, and render unto God that which is God's"

Oh but the history of religion is the very history of consent of the governed!

So it is no wonder that our rights, as Americans, come from God. Well, it was some wonder to me. See, I always thoughts our rights come from the Constitution. That if rights were given in that document, or specifically forbidden in that document, then that is the rights we do and do not have.

So for example in 1920 when the 19th Amendment was ratified, that gave women the right to vote. This is a right they did not previously had, but after this amendment did. Oh how fortuitous it is that on that date God changed his mind about that right!

Or in 1919 when the 18th Amendment was ratified, Americans no longer had the right to drink intoxicating liquors. I guess God decided to take that right away.

No, God did not decided to grant one right and take away another. Men decided what rights they had under a society of their organization. Under the Constitution people have the ability to decided what rights we have as citizens. If today three fourths of the states decided that we have the right to something, then we would have that right. If today three fourths of the states decided that we did not have the right to something, then we would not have that right.

That is the basic meaning not only of a Constitution, but of a free organization of people. That it is they, and they alone, that can decided what they do and do not have the right to.

Suppose today that God were to declare that "Now therefore hearken unto their voice; howbeit thou shalt earnestly forewarn them, and shalt declare unto them the manner of the king that shall reign over them." (1 Samuel 9)

Would that be acceptable? After all, if our rights come from God, then they are his to take away. I reckon this would, and should, be unacceptable to us.

I plan a post more focused on the relationship between God, man, and freedom, but let me just end this on a quote I have always cared for but can't recall where I first heard it:

"God did not ask us if we wanted to live, why then should he be allowed tell us how to live?"

Being a Mensch

Representative Paul Ryan (R-Wisconsin) has issued a challenge to followers of history and monetary policy:

"There is nothing more insidious that a government can do to its people than to debase its currency," Ryan said."Name me a nation in history that has prospered by devaluing its currency."

Now, this challenge has been taken on by economists using several examples. But I wanted to help Representative Ryan with a more recent example, so as to give him more contemporary evidence.

Besides, this example is a nation that is near and dear to my heart: Israel.

During the recent financial crisis, Stanley Fischer, head of the Bank of Israel (a mensch if there ever was one) responded to the faltering Israeli economy by engaging in currency devaluation. Specifically, Fischer sold Israeli Shekels and bought US Dollars, to the tune of 10% of Israeli GDP.

That is, the Bank of Israel (unlike the Federal Reserve) engaged in direct devaluation of it's money, the very thing Representative Ryan says has never been successful. So how did Israel turn out?

Israel grew at 4.7% in the second quarter of 2010
Inflation was at 1.8%
Unemployment dropped to 6.2%
Israel was admitted into the OECD
Fischer was selected central bank governor of the year by Euromoney magazine
(Source: http://www.jpost.com/International/Article.aspx?id=190878)

Add to this the fact that Israel was ranked as "the most durable in the face of the crises" in 2010 by the IMD's World Competitiveness Ranking which also ranked Israel at 17th out of 58 of the worlds most economically developed countries, rising 7 ranks from 2009. The Bank of Israel also received high marks.

There you are. A nation that pursued a direct policy of devaluing its currency and prospered.

Does that clear things up Mr. Ryan?

Pravda Reports Americans Evenly Divided on Healthcare Reform

Liberal bastion, the Wall Street Journal, attempts to distort The Truth with facts.

The Truth is that Washington jammed healthcare down America's throat, and that Americans reject it. The Truth is that voters have sent a clear message that an overwhelming majority of Americans want to be rid of Obamacare.

And here comes the WSJ to muddy this up with such crude things as exit polls, and numbers. From today's WSJ (page A8):

Congress and the health care law

Repeal it           48%

Expand it         31% 

Leave it as is    16%

So Leave it as is or expand it adds up to 47% vs 48% for repeal. So Americans would seem to be evenly divided on this issue. But that would mean that it isn't antithetical to all things American. That would mean that it wasn't just jammed down America's throat.

And that's just not The Truth.