August 10, 2010
If this is "our" debt, isn't it a little odious?
The injustice is obvious. Yet the retired or soon to be retired public employees have a point: the law of contract. They took their jobs and worked for years or decades in reliance on promises by taxpayers (in effect) to, among other things, fund lavish pensions. Forever. Public employees all across America will sue to force taxpayers to make good on those obligations. The result could be significant demographic shifts, as taxpayers flee jurisdictions that have massive liabilities to former government workers. The result, presumably, will be municipal, county and state bankruptcy.While I am not an expert on the subject, I did take contract law in law school, and I am not at all sure that the taxpayers are necessarily the contracting party. Not only do most taxpayers have no say in these matters, but many of them were not even born when the contracts were entered into, many more were not of voting age, and still more did not live in the jurisdictions in which the contracts were made. Moreover, considering that the funding of these lavish pensions is agreed to by people in the government, for other people in the government including themselves, I would argue that they have not behaved in good faith towards the taxpayers who entrusted them with their money. In legal terms, they have breached their fiduciary duties to the taxpayers, and by any fair standard (either at law or in equity), the taxpayers are relieved of any obligation to continue such funding.
The question, whether one generation of men has a right to bind another, seems never to have been started either on this or our side of the water. Yet it is a question of such consequences as not only to merit decision, but place also among the fundamental principles of every government. The course of reflection in which we are immersed here, on the elementary principles of society, has presented this question to my mind; and that no such obligation can be transmitted, I think very capable of proof. -- I set out on this ground, which I suppose to be self-evident, that the earth belongs in usufruct to the living: that the dead have neither powers nor rights over it. The portion occupied by any individual ceases to be his when himself ceases to be, and reverts to the society. If the society has formed no rules for the appropriation of its lands in severality, it will be taken by the first occupants, and these will generally be the wife and children of the decedent. If they have formed rules of appropriation, those rules may give it to the wife and children, or to some one of them, or to the legatee of the deceased. So they may give it to its creditor. But the child, the legatee or creditor, takes it, not by natural right, but by a law of the society of which he is a member, and to which he is subject. Then, no man can, by natural right, oblige the lands he occupied, or the persons who succeed him in that occupation, to the payment of debts contracted by him. For if he could, he might during his own life, eat up the usufruct of the lands for several generations to come; and then the lands would belong to the dead, and not to the living, which is the reverse of our principle.So how far do these so-called taxpayer "obligations" go? Are taxpayers supposed to sit around passively and watch the government go bankrupt? And what if it does go bankrupt? Whose bankruptcy is it? If we analogize to a corporation, when it fails, the shareholders' stock becomes worthless, but they are not personally liable for its debts. As to the corporation's bondholders, they have to stand in line and collect whatever they can of whatever assets remain. If the U.S. goes bankrupt, bondholders will be SOL, and so will the rest of the country's creditors. But if a corporation can go belly up, I don't see why a country can't. Sure, it would be very tough, and the currency would be worthless, but the idea of holding American citizens personally liable for the previous actions of its political classes after the bankruptcy of the country would be so violate basic standards of legal fairness as to be morally egregious. (That's what drove the Weimar Germany into the hands of Hitler, BTW.)
Besides (and I know we're nowhere near "there" yet), there is plenty of historical precedent for telling the country's creditors to go pee up a rope:
A politically unstable state is anything but risk-free as it may, being sovereign, cease its payments. Examples of this phenomenon include Spain in the 16th and 17th centuries, which nullified its government debt seven times during a century, and revolutionary Russia of 1917 which refused to accept the responsibility for Imperial Russia's foreign debt. Another political risk is caused by external threats. It is most uncommon for invaders to accept responsibility for the national debt of the annexed state or that of an organization it considered as rebels. For example, all borrowings by the Confederate States of America were left unpaid after the American Civil War. On the other hand, in the modern era, the transition from dictatorship and illegitimate governments to democracy does not automatically free the country of the debt contracted by the former government. Today's highly developed global credit markets would be less likely to lend to a country that negated its previous debt, or might require punishing levels of interest rates that would be unacceptable to the borrower.In extreme cases, there's also the legal doctrine of odious debt. The idea is that it is unfair to hold citizens responsible for debts to which they did not consent and which were not for their benefit.
An article by economists Seema Jayachandran and Michael Kremer discusses the doctrine in more detail:
Our analysis is related to the legal doctrine of odious debt, which holds that debt should not be transferable to successor regimes if (a) it was incurred without the consent of the people and (b) was not for their benefit (Alexander N. Sack, 1927; Ernst Feilchenfeld, 1931).1 The underlying principle is that just as an individual does not have to repay money that someone fraudulently borrows in her name, and a corporation is not liable for contracts that its chief executive officer enters into without authority to bind the firm, a country should not be responsible for debt that was incurred without the people's consent and was not used for their benefit. The doctrine arose after the Spanish-American War when the United States contended that neither the United States nor Cuba should be responsible for debt that Cuba's colonial rulers had run up in Cuba's name. The concept attracted considerable attention in 2003 when the Secretary of the Treasury and other senior U.S. officials suggested that debts incurred by Saddam Hussein should perhaps be considered odious and not the new Iraqi government's obligation to repay.2The Cato Institute has another piece on odious debt:
Most debts created by Saddam Hussein in the name of the Iraqi people would qualify as "odious" according to the international Doctrine of Odious Debts. This legal doctrine holds that debts not used in the public interest are not legally enforceable.Far be it from me to compare people like Chris Dodd, Barney Frank, Nancy Pelosi and Harry Reid to Saddam Hussein. They didn't build huge palaces or massacre their political enemies. But how can reckless policies which are certain to bankrupt a country ever be considered to be in the public interest? Saddam Hussein would say that his were, and I think all tyrants would make the same claim. As to consent, once again, all the Saddams would argue that of course the people consented. Just ask Mahmoud Ahmadinejad; I am sure he will say that the people love him and he is acting in their interest.
But tyranny is tyranny. It doesn't have to reach the bloodthirsty levels of a Saddam Hussein. Tyranny is arbitrary power, especially illegal and unconstitutional power.
Which raises the question of the day: Are we now living under tyranny?
I sometimes get myself worked up into emotional states, and when I do I try to avoid writing about the topic that upset me, because I find I am more capable of being logical, analytical, and rational when I am calm. And it is really easy to get all worked up and scream that these people who want to invade our privacy, steal our money, and run every last aspect of our lives are tyrants.
But the other day I was calm, collected, unemotional, relaxed, you know, completely sober in every sense of the word, and I concluded that, yes, it is beyond question that the United States government has become tyrannical.
On sober reflection, I still agree with my sober and reflective thought.
(I should probably be more emotional about such a disturbing thing. Maybe it's a sign of age.)
posted by Eric on 08.10.10 at 01:24 PM
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