TCS Daily : Technology - Commerce - Society

Thursday, November 16, 2006
TCS Daily : Technology - Commerce - Society:America has never paid off its original national debt. In 1800, we owed about $75 million. By the 1830s it got down to as low as $33,000. After the civil war, the debt exploded again. Ditto for WWI, WWII and WWIII (the cold war). My generation is now paying for the cold war. Do I mind? When I was a child 20,000 nuclear-tipped missiles were aimed at my country, and now they're not. I think that's a pretty good deal.

Since the national debt has never been paid off, some of that principal represents the borrowing that was used to fight the War for Independence. Some of my taxes, and the taxes of every generation of Americans, goes towards servicing that initial loan. Did Hamilton do us wrong by devising the financial structure of the deal? Does Adams owe us an apology for selling the bonds? Not likely. Every generation since 1776 has benefited from that first war.

There is a basic principle of financial accounting called 'matching.' It teaches that there should be some attempt to match, in time, the benefits of revenues with the costs incurred in pursuit of those revenues. It's why businesses depreciate long-term assets over a period of years. It's why local governments have capital budgets, funded with bonds, which they use to pay for infrastructure like roads and bridges.

Defense is a sort of infrastructure, too. It provides benefits for future generations, just like roads and bridges do. Is it some kind of rip-off that my kid's future tax bills will include interest payments from the war against Jihadists? Not if we win.

1 comments:

Rick Ballard said...

Why stop at defense? Why not capitalize all ongoing maintenance expenses using debt? Then debt capitalize the interest payments and we would have a perfect perpetual motion machine.

What an amazing insight this fellow has. It's almost as if he had studied what schoold districts have been doing for the past twenty years or so.