Which is bigger?

The national debt or the national ignorance about the debt?

I suppose one way to think about it is to propose that the American educational system has failed because almost no one understands the simple and basic concept of a national debt. Not the editors at Time:

Not the Tea Party.

Does Donald Trump, the Teadiot darling? That's a curious question. (Bear with me. I will leave the formal demolition of the debt-is-a-bad-idea to more formal people. This post will offer some facts that, I am willing to bet, not many people know.)

Trump is clearly not averse to borrowing when he can find someone stupid enough to lend to him, but his 4 -- count 'em, four! -- bankruptcies demonstate he doesn't manage debt well.

The first country to create a funded permanent national debt in the modern sense was England in 1694. The vehicle was the Bank of England, which is still in business and doing very well, thank you.
Britain has never been out of debt since and the debt keeps growing. Yet the British are among the most prosperous people in the world.

The British understood the value of a safe investment in which its growing middle class could park their savings, since placing them with private banks was extremely dangerous. (This is one of many examples of how governments can accomplish goals better than private enterprise. Nobody has even lost a farthing in the Consols, as British government stock used to be called.  Consols were finally paid off last year, now replaced with more modern forms of public debt.)

There were earlier "national debts," of course, but usually considered the personal obligation of the sovereign. Sovereigns were very bad people to lend to, as Jacques Coeur and many another rich man discovered. The few medieval and early modern republics issued what we would now recognize as national debt.

These were called, in Italy, mountains of piety, and they were not always voluntary. Venice made capital levies on its rich citizens to pay for war, issuing bonds. In light of the recent controversy about vulture funds buying discounted debt from Argentina, Puerto Rio and other places, it is interesting that when Venice eventually paid off its bonds (which were 100 at par), it paid 2 ducats to holders who had bought on the secondary market, but 8 ducats to heirs of the original "investors" of a century earlier.

The United States got its national debt down to nothing during the "National Period" by selling off lands it had stolen from the Indians. It had the advantage of not fighting expensive wars or providing much in the way of public services in those days, except lighthouses and harbors. Global trade was not a bad word back then.

The Civil War put the nation into permanent debt, but this did not damage prosperity, which -- in terms of percentage expansion -- has never been greater. Holders of Confederate bonds lost everything.

The United States has never levied on capital, although that might have been a good idea at some periods, like 2003-present. Nor has it ever raised forced loans, although the pressure to buy War Bonds was very strong in 1917-18 and 1942-45.

The end of World War I was followed by a sharp depression from which the country never recovered, and it was feared that World War II would also be followed by a depression, unemployment and business failures. Debt saved the country's bacon, however.

In 1917-18, ordinary workers, who were paid little over subsistnce, could not buy much debt, but in 1942-45, thanks to minimum wages, unionization and oher excellent New Deal innovations, ordinary workers bought $140 billion in governemtn debt. In 1946, as the economy converted to peacetime pursuits, this enforced saving was unleashed in a tidal wave of home buying, car buying and furniture buying that at last ended the depression that had started in 1921-22.

For perspective, in 1944 the government ran its biggest debt (as counted in constant dollars) ever, $244 billion. So the war debt in the hands of average Americans was equal to about six months of allout deficit spending.

It helped that much of that $244 billion was invested in new factories, mills and mines. Most of these were put to profitable use after the war. Very, very profitable, since many of these valuable properties were turned over to private corporations for a dollar each. That is not the kind of deal that you or I are ever offered, so when some heir of World War II profiteers bitches about taxes and spending, throw that in his face. (It was not because the holders of great wealth were such great managers that their share of national wealth went up and up.)

The Time cover story that sparked off this post was not written by a staffer (though it must have been editd by the paid help) but by James Grant. Here is how the magazine describes him:

Grant is the editor of Grant’s Interest Rate Observer. His latest book, The Forgotten Depression: 1921: The Crash That Cured Itself, won the 2015 Hayek Prize

 Ah! Time turned its cover over to a Teadiot. Not everybody has forgotten the Crash of '21. Not RtO, not by a long shot.

As I have mentioned many times (working off the research of Rexford Guy Tugwell, perhaps the best of all American political economists), in 1921 about 1 in 4 Americans was a farmer or other primary producer (timber, fish) or depended on farmers for income. Although US industrial production expanded in the '20s, giving rise to an illusion called "Coolidge prosperity," the farmers who were wiped out virtually dropped out of the money economy. After great exertions, the New Deal began to get the farm economy reviving by 1940, but by 1950 technological innovations had rewritten the playbook. The yeoman farmer never did recover. (As Harry Truman remarked, in 1949, there were 2 million farming mules in Missouri; but they were being replaced by tractors.)

It is no surprise that a moron like Grant would win a Hayek Prize.