Koch Brothers Are "Neutral" On Government Shutdown

Some libertarians, they are.

NBC reports:

In a move that highlights a growing rift in conservative ranks, Koch Industries -- the privately held energy conglomerate owned by  billionaires Charles and David Koch -- today distanced the firm from allied political groups lobbying to keep the government shut down unless Obamacare is defunded.  

A letter, signed by the company's chief lobbyist and sent to members of Congress, says that Koch Industries has taken no position on the shutdown dispute in Congress "nor have we lobbied on legislative provisions defunding Obamacare."

Instead, Koch Industries wants Congress to focus on "balancing the budget" and "cutting government spending," among other goals, said Philip Ellender, Koch Industries president for government and public affairs[...] privately, Koch officials have expressed concern to lawmakers that the prospect of a government default over the Obamacare issue would be a "disaster" for the economy, according to one GOP consultant who recently discussed the matter with Koch officials and asked for anonymity. Koch Industries associates note that the firm is widely diversified, including last month's $7.2 billion purchase of a company that makes connectors for Apple iPhones and other consumer products -- one of many markets that could be affected by spikes in credit resulting from a government default. 

Contrast this with the principled libertarian position, from Murray Rothbard:

 In a free-market economy that respects property rights, the volume of private debt is self-policed by the necessity to repay the creditor, since no Papa Government is letting you off the hook. In addition, the interest rate a debtor must pay depends not only on the general rate of time preference but on the degree of risk he as a debtor poses to the creditor. A good credit risk will be a “prime borrower,” who will pay relatively low interest; on the other hand, an improvident person or a transient who has been bankrupt before, will have to pay a much higher interest rate, commensurate with the degree of risk on the loan.

Most people, unfortunately, apply the same analysis to public debt as they do to private. If sanctity of contracts should rule in the world of private debt, shouldn’t they be equally as sacrosanct in public debt? Shouldn’t public debt be governed by the same principles as private? The answer is no, even though such an answer may shock the sensibilities of most people. The reason is that the two forms of debt-transaction are totally different. If I borrow money from a mortgage bank, I have made a contract to transfer my money to a creditor at a future date; in a deep sense, he is the true owner of the money at that point, and if I don’t pay I am robbing him of his just property. But when government borrows money, it does not pledge its own money; its own resources are not liable. Government commits not its own life, fortune, and sacred honor to repay the debt, but ours. This is a horse, and a transaction, of a very different color.

For unlike the rest of us, government sells no productive good or service and therefore earns nothing. It can only get money by looting our resources through taxes, or through the hidden tax of legalized counterfeiting known as “inflation.” There are some exceptions, of course, such as when the government sells stamps to collectors or carries our mail with gross inefficiency, but the overwhelming bulk of government revenues is acquired through taxation or its monetary equivalent. Actually, in the days of monarchy, and especially in the medieval period before the rise of the modern state, kings got the bulk of their income from their private estates – such as forests and agricultural lands. Their debt, in other words, was more private than public, and as a result, their debt amounted to next to nothing compared to the public debt that began with a flourish in the late 17th century.

The public debt transaction, then, is very different from private debt. Instead of a low-time-preference creditor exchanging money for an IOU from a high-time-preference debtor, the government now receives money from creditors, both parties realizing that the money will be paid back not out of the pockets or the hides of the politicians and bureaucrats, but out of the looted wallets and purses of the hapless taxpayers, the subjects of the state. The government gets the money by tax-coercion; and the public creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future. This is the opposite of a free market, or a genuinely voluntary transaction. Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future. Both parties, therefore, are making agreements about other people’s property, and both deserve the back of our hand. The public credit transaction is not a genuine contract that need be considered sacrosanct, any more than robbers parceling out their shares of loot in advance should be treated as some sort of sanctified contract.

Any melding of public debt into a private transaction must rest on the common but absurd notion that taxation is really “voluntary,” and that whenever the government does anything, “we” are willingly doing it. This convenient myth was wittily and trenchantly disposed of by the great economist Joseph Schumpeter: “The theory which construes taxes on the analogy of club dues or of the purchases of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind.” Morality and economic utility generally go hand in hand. Contrary to Alexander Hamilton, who spoke for a small but powerful clique of New York and Philadelphia public creditors, the national debt is not a “national blessing.” The annual government deficit, plus the annual interest payment that keeps rising as the total debt accumulates, increasingly channels scarce and precious private savings into wasteful government boondoggles, which “crowd out” productive investments. Establishment economists, including Reaganomists, cleverly fudge the issue by arbitrarily labeling virtually all government spending as “investments,” making it sound as if everything is fine and dandy because savings are being productively “invested.” In reality, however, government spending only qualifies as “investment” in an Orwellian sense; government actually spends on behalf of the “consumer goods” and desires of bureaucrats, politicians, and their dependent client groups. Government spending, therefore, rather than being “investment,” is consumer spending of a peculiarly wasteful and unproductive sort, since it is indulged not by producers but by a parasitic class that is living off, and increasingly weakening, the productive private sector. Thus, we see that statistics are not in the least “scientific” or “value-free”; how data are classified – whether, for example, government spending is “consumption” or “investment” – depends upon the political philosophy and insights of the classifier.

Deficits and a mounting debt, therefore, are a growing and intolerable burden on the society and economy, both because they raise the tax burden and increasingly drain resources from the productive to the parasitic, counterproductive, “public” sector. Moreover, whenever deficits are financed by expanding bank credit – in other words, by creating new money – matters become still worse, since credit inflation creates permanent and rising price inflation as well as waves of boom-bust “business cycles.”[...]

I propose, then, a seemingly drastic but actually far less destructive way of paying off the public debt at a single blow: outright debt repudiation. [...]

Apart from the moral, or sanctity-of-contract argument against repudiation that we have already discussed, the standard economic argument is that such repudiation is disastrous, because who, in his right mind, would lend again to a repudiating government? But the effective counterargument has rarely been considered: why should more private capital be poured down government rat holes? It is precisely the drying up of future public credit that constitutes one of the main arguments for repudiation, for it means beneficially drying up a major channel for the wasteful destruction of the savings of the public. What we want is abundant savings and investment in private enterprises, and a lean, austere, low-budget, minimal government. The people and the economy can only wax fat and prosperous when their government is starved and puny.