Ron Paul's Texas Straight Talk - A weekly Column
August 17, 1998
Deceptive economic euphoria
So-called 'good times' must end

Congressional leaders are squabbling like never before; not over how to cut spending, reduce government and balance the budget, but over how to spend the so-called $1 trillion budget surplus expected over the next ten years.

An interesting concept indeed! The national debt is rising at the rate of over $150 billion per year and our leaders never-the-less are euphoric over huge budget "surpluses" for "as far as the eye can see." This has to be one of the craziest debates of all recorded economic history. I'm sure similar deceptions in budgetary history have been known but never to the extent of this $1 trillion "windfall."

It is true many Americans believe this nonsense and feel giddy about the prospects of sharing in a perpetual wealth machine. Of course, not much good can be expected to come from such accounting chicanery, but the debate is not all bad. Tax cuts are being considered as a way of "spending" some of the money coming in from - what else! - excessive tax revenues. But the myth prevails that allowing an individual to keep their earnings is recorded as a cost to government, and that is a concept which must be rejected.

The debate over how to manage all this extra cash never includes any discussion about reducing the size and scope of government; while plenty of energy is spent on promoting new welfare and warfare spending.

Is anyone asking serious questions about what is going on and how long will the good times roll? A few, but they are not inside the Capitol Building. Outside the beltway, it's a different story. Many people I talk to are outright skeptical, or just don't believe the propaganda, and many don't even listen to the nonsense coming from our political leaders. They are struggling to pay their bills, believe taxes are way too high, that business and personal regulations are too numerous and overbearing, that inflation is alive and social security is broken. And this in spite of being at the peak of a grand economic "recovery" with the markets in the world awash in paper dollars and paper profits.

It does not go unnoticed by people outside the Washington, DC, that the cost of living continues to rise despite the government's rosey reports. Personal bankruptcies are at a record high level, and the 18% interest on consumer debt is a lot different from interest earned on savings accounts.

But among members of Congress and their staffs, there is unrestrained euphoria. Sadly, it has more to do with politics than reality.

First, we're not doing as well as claimed and most Americans know it. Second, we're doing well because we benefit, as all countries do for a limited periods of time, from central bank credit creation - i.e., free money flowing into the banking system keeping interest rates artificially low. A $5.6 trillion debt and growing allows government expenditures to continue despite the nonsense about a balanced budget all the Washington pundits are bragging about.

But most importantly, our trade deficit, and the willingness of foreigners and foreign central banks to take our inflated dollars and hold them gives us a free ride for now and for as long as they see fit to accept our greatest export: our inflation and debt.

But all good things must end when they are built on a fiction. A fiction is precisely what fiat money is - the economic equivalent of the philosopher's stone, which was hoped to turn lead into gold.

That it must end points to the bigger problem of dealing with an economic crises when it hits. There is no way to know when such a crises will come - but the laws of economics are as unyielding as those of physics. A crises will come, but how we will deal with it is the most important question of all, simply because our response will determine how future generations of Americans live. Will they have more or less liberty? More or less prosperity? More or less peace?

The solution is not complex if we as a nation reject the notion that the role of government is to use coercive powers to promote welfare and warfare, and instead accept the principle that the role of government is to protect liberty. Only under that system will the euphoria of the politicians be justified.