The Trillion Dollar Question: Should the National Debt be Repudiated?

I have been predicting that the U.S. government would default on its debt since 1993. At the time, no one else was making such an outlandish forecast. Now those who are discussing the prospect as at least a realistic possibility are far too numerous to cite. But worth mentioning are the recent Congressional Budget Office issue brief, which substitutes the word"restructure" for"default," and two articles by economist Laurence Kotlikoff, one in the Financial Times and the other for Bloomberg.

What is more interesting is that a few have begun advocating a U.S. debt repudiation.

See for instance this 2009 op-ed by Scott Beaulier and Pete Boettke, this January 2010 article by Gideon Rachman in the Financial Times, or the following website. Indeed, as I reported in a previous post, similar musings have provoked Bruce Bartlett to attack advocates of default. And here is an article by John Seilter advocating a California default. (For a up-to-date source that monitors the pension crises facing not just California but other states, check out Jack Dean's website, Pension Watch.)

My own first article making the case for the repudiation of all government debt, which appeared in the August-September 1981 issue of Caliber (publication of the Libertarian Party of California), is now available as a pdf download on my personal webpage. I've accompanied the article with a caveat that includes the following:"If I were writing it today, the article would be a little less strident, and my discussion of the economic consequences of repudiation would be more sophisticated. I would tone down some minor hyperbole in the article's opening section. In particular, the 2007-08 financial crisis has convinced me that I was much too blase about the short-run consequences of a U.S. repudiation. But I still think my long-run economic analysis is correct, that my moral case for repudiation is justified, and that my historical examples (which could be expanded and extended to other cases) is telling."