February 23, 2013
A Debtor-Prison NationBy Frank Ryan
The United States has often prided itself that we no longer have debtors' prisons. Debtors' prisons were, for the most part, outlawed in the United States by the end of Reconstruction.
While debtors' prisons were commonplace in the New England early in the formation of our nation, the entire idea of such prisons was met with revulsion by most Americans.
Debt demands and high taxes were even a major reason for Shay's Rebellion in Massachusetts. The 1787 rebellion ended in defeat for the farmers seeking relief, but the war cry of oppressive debts did not fall on deaf ears.
Today, however, massive debt load in the states and our nation has potentially propelled us into becoming a debtor prison nation!
The idea of bankruptcy and not meeting one's moral obligations to repay debts and to prevent creditor abuse caused our founding fathers to devote an entire section of the United States Constitution on bankruptcy in Article 1, Section 8, Clause 4.
Even Madison observed in The Federalist No. 42, "The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds where the parties or their property may lie or be removed into different States that the expediency of it [i.e., Congress's power to regulate bankruptcy] seems not likely to be drawn into question."
While the liberals cherish that we have become an "enlightened" people with debt forgiveness of mortgages and credit cards, perhaps their enlightenment should be dimmed by their lack of sensitivity to the debts they have created for our nation as a whole.
The massive unfunded liabilities of Social Security and Medicare, government worker retirement programs, and social welfare programs, the debt burden on the incomes of future generations is so massive as to make it unsustainable for economic survival. These massive debt burdens and obligations of generations past create a de facto debtor prison for future generations.
Recently I was asked by representatives of a parish Chamber of Commerce in Louisiana and separately by a Pennsylvania education association to assess the structure of the public debt of their localities as well as neighboring states to determine their economic impact on them.
These studies came about as people realize that population shifts in the United States are occurring, in part, because of the debt burden and potential debt repayment through higher taxes in those affected areas.
The net result of these studies thus far reinforced the notion that significant population shifts out of the more debt-burdened states to those with less public debt are significant.
As an example, since 1930, Pennsylvania, with high taxes and high unfunded obligations, has lost over one half of its congressional representation. Similar results have occurred in virtually every New England state of size.
With the passage of the significant tax increase in California recently, my initial projections show that California may lose as many as 2 to 3 congressional seats in the next census -- unless California continues to benefit from illegal immigration in the census.
There is a quandary, however, as to when the nation itself becomes the high debt nation.
Great Britain's tax rate at one point in time exceeded 70%, and as such, Great Britain experienced a great "brain drain." Many of those citizens came to the United States.
The United States is likely to experience a similar brain drain and economic malaise if the fiscal policies of the past and present go unchecked.
The solution to the problem of creating a devastating paradox of a debtor-prison nation is to uphold the principles of our Constitution in Article 1, Sections 7 and 8 and limit the growth of the federal government.
The Repeal of the 17th Amendment, while not likely initially, would begin the process of limiting federal government growth.
The 17th Amendment to the Constitution diminished the rights of the states by allowing for the popular vote for the U. S. Senate, such that the stage became set to have the federal government begin to assume a role for which it was not originally intended. This creates an environment in which states may have their financial solvency threatened by the actions of other states when the federal government becomes the lender of last resort to the insolvent states.
When a nation has such extensive debt, as in the United States, that it restricts its options for creating and fostering economic growth or prosperity for future generations, it is likely that the nation will cease to flourish as it has in our past. Opportunities to escape to other states may be for naught if the problems are national in scope.
A significant, prolonged, and sustained economic malaise will likely occur with our current debt burden and unfunded obligations.
Only disciplined, controlled reduction in out-of-control public-sector spending will reverse this trend...which started in the 1930s. Keynes, you opened a can of worms!
Col. Frank Ryan, CPA, USMCR (Ret.) served in Iraq and briefly in Afghanistan. He specializes in corporate restructuring and lectures on ethics for the state CPA societies. He has served on numerous boards of publicly traded and non-profit organizations. He can be reached at FRYAN1951@aol.com and on Twitter at @fryan1951.
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