September 2017

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I am a believer in Stein's law: If something cannot go on forever, it will stop.

I fear that the impetus for stopping will be the bond market.

Well, there is always the South American approach: welch on the debts. Tell the bondholders that they're taking a big haircut, and oh-by-the-way, the government is a sovereign borrower, so your recourse is squat.

Frankly, talking up the possibility of a federal default could spook potential lenders, and drive up borrowing costs. That, in turn, could bring this problem to a head before the actual debt load gets any worse.

It will stop one way or another. But if it can't be stopped by a reasonable return to sound market principles, then I'm afraid we really don't want to experience how it will be stopped in the absence of will. The history of inflationary depressions in the world have not been pleasant.

Perhaps the few countries such as Australia and New Zealand without fiscal problems will benefit. We can't help wondering if insolvent states will take down their economies with them. Although it would seem best to screw bondholders and entitlement program beneficiaries, perhaps they'll be more tempted to productive activities leading to a flight of people and capital.

David, do you anticipate that all the productive people will flee to Australia and NZ?

Yes, that could happen, depending on how attractive their policies are and how unattractive the policies of the countries with fiscal difficulties. Others might include Hong Kong, Singapore, Panama, Bahamas and plenty more that could be attractive. I'm considering Singapore and Brunei.

I am current reading a piece that references Schumpeter's article. Alas, I went to the stacks at my library and they only have International Economic Papers from 1955 to 1960 and they are nowhere online.

Does anyone have a copy of "The crisis of the tax state"? I would love to read it.

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