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“Full Faith and Credit” and Related Delusions of Grandeur

Written by Gary North on October 8, 2014

Approximately half of all Americans receive government subsidies of one kind or another.

This is seen by some conservatives as the demise of the American Republic, the death-knell of resistance to the welfare state. It is nothing of the sort. It is strong evidence of the opposite: the high-water mark of the American welfare state. Why is this the case? Because American voters long ago drew a line in the sand on how much taxation they will tolerate. The only way that the federal government can maintain its existing level of spending is by borrowing. When the lenders finally close their wallets to the world’s most spendthrift dowager aunt — the government of the United States — the experiment in massive wealth through government wealth redistribution will end in a Great Default.


The dowager aunt has a favorite phrase: “the full faith and credit of the United States.” By this, it means the United States government’s ability to extract wealth by force from residents of the United States. Why do millions of people believe in this phrase, and open their wallets to this clearly out-of-control debtor, whose defenders brag that she will never pay off her debts, nor will she ever be called upon to do so — Keynesians, monetarists, and supply-siders?

Other than Austrian School economists, what academic school of opinion has called for a return to 1836 — the first and last year in which the United States government owed no one anything?

The United States government cannot extract much additional wealth from the residents of the United States. Only if they grow richer can Washington grow more profligate. Here is the great irony: this has always been the case. The assumption that Washington can extract wealth at will is one of the many delusions of academic economists and members of Congress. This assumption has been long been refuted by easily available historical evidence. The politics of the federal debt points to a permanent ceiling on the voters’ acceptance of additional tax collecting. The voters are unconcerned about how much Washington spends. They simply refuse to pay for it.

By now it should be clear that Americans will not tolerate federal taxes any higher than approximately 20% of GDP. This has been true since the end of World War II. Even with the highest tax level, in 1944, the rate did not go above 21%.


Let me put it another way: 80% of GDP is inaccessible to the federal government through direct taxation. This is as close to an unbreakable political law as there is.

(For the rest of my article, click the link.)

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