“Give me your tired,
your poor asset classes”
By Melvin J. Howard
The role of the
Treasury Department or Treasurer is to deal with financial issues to collect
income, to disperse expenditures, to maintain the books, see to the investment
of surpluses and the borrowing necessary to cover shortfalls. So to with the U.S.
Department of Treasury that oversees the management of the biggest account in
the world, that of the U.S. Government. The U.S. Treasury Department oversees
the main governmental revenue collector, the IRS or Internal Revenue Service,
the Bureau of Public Debt that manages government debt issuance, and the U.S.
Financial Management Service, who manages "The Books".
It is important to
appreciate that the accounts of a government do not look at all like the
accounts of anybody in the private sector, be it a for-profit or a non-profit
organization, or even an individual. Indeed, if you viewed the U.S. government
balance sheet through a private sector lens you would immediately declare it
bankrupt and wonder why U.S. Government Bonds are considered the safest assets
in the world!
However, the reason a
government's balance sheet doesn't tell you what you need to know about the
safety of a government obligation is because it doesn't place a value on the
right of a sovereign to tax its residents. This right of the sovereign, held
only by the sovereign, generally makes obligations of the sovereign a safer
investment than any private sector body licensed by, or domiciled in, that same
sovereign nation. Then, the higher the national income (or the tax-base) in
that country the higher the expected revenue to the sovereign body, and the
more likely it will be able to meet its own obligations (provided its debt
levels stays within certain bounds). Thus it comes as no surprise that the
country with the largest economy and national income also issues the least
risky type of debt security and in today's world that is the U.S. Government.
The result is the easy
ability for the government to both tax and to borrow facilitates. This enables
the type of military expenditure and infrastructure spending necessary for
America to continue building further economic growth. Economic growth spurs
further access to capital for military and infrastructure expansion, and so the
cycle continues. So America would then be very concerned about the following
two primary threats to this pattern.
Growing expenditures that increasingly
take money away from the primary building and maintenance expenditures
(military and infrastructure investment). Emerging empires with fast economic
growth that could take their place. And so it would be that some of the main
concerns of Financial Management today are:
In the first category
of competition for empire building funds are two main things. First are
terrorist actions that make economic infrastructure more expensive to maintain.
The other is the aging of the U.S. population and increasing healthcare costs. In
the second category of emerging empires China and India are the
most frequently used. Although looking at both today that is not a
concern.
Role of Taxation
Of course one cannot
talk about the role of tax without talking about the role of government since
tax is what funds everything a government decides to do. Regardless of what
kind of society you live in - dictatorship, communist, capitalist, democracy, semi-democracy
- a government will spend money on the following in various orders of priority:
1.
Militaries for self-defense
of the home country and possibly for control over other countries.
2.
Some type of system of
law and order in the home country.
3.
Infrastructure for
economic development.
4.
Human development -
education, healthcare, and so forth.
5.
Foreign relations with
other countries.
6.
Redistribution and
economic insurance, or "safety net", for individual residents.
In the U.S. the main
redistribution function and associated safety nets look a bit more like a type
of "insurance" against personal economic disasters, whereby the risks
of such events are spread across the society as a whole. For example, the risks
of no longer having access to money due to retirement or disability which is
what Social Security covers are borne by society as a whole, which has a much
larger capacity to bear that risk, than do the individuals likely to experience
such events. Placing these risks on individuals to bear became intolerable
during the Great Depression, leading to the establishment of the Social
Security system. The purpose of any insurance is to pool risks so that each
individual in the pool lowers their own risk of some crippling disaster for a
small annual fee paid to the pool. Therefore, any insurance mechanism is
necessarily re-distributive. "Insurance like" federal taxes such as
Social Security are more re-distributive than any private sector insurance
because those with the highest ability to bear the related risks (those with
high incomes) get the lowest expected return on their contributions to the
system. In addition, what is really happening, is that current worker’s
contributions are always paying for current retirees in the system and there
really isn't any "saving for the future" going on, as is so often
presented. Such a progressive risk sharing mechanism could not work in the
private sector, which is why it was founded as a public system in the first
place.
Some argue for less
government intervention in the market economy seem to overlook the fact that
the government creates the infrastructure for the markets to function in the
first place. Without government created legal and judicial infrastructure, even
the most basic contract would not be enforceable, except at gunpoint. Since our
whole monetary and trade systems are built primarily on contracts of agreement,
modern markets would not exist, and economic development could not happen,
without significant government intervention.
Those who also argue
for an end to government sponsored re-distributive mechanisms either overlook
or dismiss the role of periodic redistribution in sustaining economic
prosperity. Without government intervention in redistributing wealth in
suitable amounts you step on to a spiral of increasing inequality.
"Nothing can preserve the integrity of contract between individuals except
a discretionary authority in the State to revise what has become intolerable.
The powers of uninterrupted usury are too great. If the accretions of vested
interest were to grow without mitigation for many generations, half the
population would be no better than slaves to the other half. Those who insist
that the State is in exactly the same position as the individual, will, if they
have their way, render impossible the continuance of an individualist society,
which depends for its existence on moderation.
