Amerika

Associated Press reports on a small city run according to libertarian principles, including this momentary glimpse of clarity on the options for funding a human settlement:

Their use of cash to pay for infrastructure has depleted reserves and left the city unable to produce the kind of investment income that for years helped hold down taxes.

What this does not tell you is that for cities to do this, they must be recklessly in debt. Their entire value is controlled by investments over which they have no control, and this strategy requires them to borrow money and pay it off in small increments instead of having wealth they can apply directly.

This strategy is used by the American government, which is $20 trillion in debt, and many financial managers think it is intelligent. After all, the monthly payments are low, and borrowing enables them to do things today and defer paying for them until tomorrow.

Smarter minds realize that this strategy creates out-of-control debt which, while the cost may be lower now, defers actual costs into the future, effectively passing them down to future residents. It also means that if the investments go south, the city will find itself not only bankrupt but collapsing from lack of cash because it will no longer be able to borrow.

We can see the end results of this strategy through what happened to San Bernardino, California when it declared bankruptcy:

The city filed for bankruptcy in 2012, blaming a loss of tax revenue, high-priced employee pensions, and a city charter that separated the cost of police and fire salaries from the city’s ability to pay. It’s now nearing the end of its time under court protection, having negotiated settlements with its biggest creditors, including pension bondholders owed about $90 million. Final approval on a plan to reduce debt by about $200 million could come as early as next month when the city is due back in court.

San Bernardino is an outside case with a number of other problems, but that shows an acceleration of time scale, not an exception. All of the cities who follow the Leftist tax-and-spend model are forced to borrow themselves deeply into debt, and eventually the bill becomes due. Like the Baby Boomers, most voters prefer to party today and pay tomorrow, but the end result is that when tomorrow comes, it is a cataclysmic crash instead of simply hard times.

The Libertarian suburb may have finally enforced the reality principle. It may not be able to afford all the nice things that make voters happy this way, but perhaps it should not be able to. Maybe government should be smaller and fiscally responsible instead of a “gift-giver” that ends up in bankruptcy.

Similarly, Donald Trump promises to enforce this principle on the world if elected. He will force other nations to pay for their own defense, which means that in turn, they will not be able to afford the luxurious social welfare benefits programs with which they have bought votes for so long. Socialism will finally collapse in those countries.

These realist efforts can help return the world to sanity. No one feels good, existentially, about leaving a vast debt for the future. Once in the debt hold, there is not much people can do to escape it. Our governments have pursued this path to the expense of future generations, and made us bigoted against the possibility of future as a result.

Tags: bankruptcy, debt, economics, funding