Wednesday, 18 November 2009

Time for U.S. to declare bankruptcy?

Scott Beaulier and Peter L. Boettke ask this question in this piece in the East Valley Tribune. Drawing on the discussion of the public debt by a guy called Adam Smith, Beaulier and Boettke write,
Rather than erode debt obligations through inflation, the debt could be repudiated through bankruptcy proceedings. Like individual bankruptcy cases, the United States government would admit that it is unable to pay off existing debts. The repudiation would force future politicians to credibly commit to sounder economic policies and, perhaps, would help to avoid future cycles of deficits, debt, and debasement.

Of course, our call for debt repudiation is not a new one. Like many good ideas in economics, Adam Smith was there long before us. “When it becomes necessary for a state to declare itself bankrupt ... a fair, open, and avowed bankruptcy ... is both least dishonourable to the debtor, and least hurtful to the creditor,” he argued. In other words, when the financial storm arrives — and it will — the juggling tricks must stop.
I like this idea!

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