Monday, July 25, 2011

Debt-ceiling limit and double entry bookkeeping

Double entry bookkeeping has been known since the 15th century at least, going back to Luca Paccioli. However, most discussions of public debt in the US assume that there are only liabilities, but no assets. In that respect the quote from Evsey Domar below is instructive:
"President Eisenhower, who disliked deficits and debts, is reported to have said, shortly before he left the White House, that every American baby born at the time carried on its neck a tag indicating its share of the Federal debt. Perhaps it did; but it must have also borne a second tag showing its share of the value of the Federal bonds."
The debt clock in Manhattan should be changed accordingly. It’s also a credit clock. By the way it’s interesting to note that Alexander Hamilton would talk not of public debt, but of public credit.  It also should lead to a change in the discussion about the arbitrary limit to debt.  If there are people unemployed and the government can borrow at low rates (and could use the resources to put them to work) why not increase the credit of the nation?!

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