Marijuana and Sovereign Debt

I am a staunch advocate of the legalization of marijuana. "Staunch," while a great word (like Kafkaesque and zucchini) is not strong enough to describe my feelings. While I am very politically active, drug law reform is one of the two or three issues I actually put time and effort into.

But I digress, all because of this article : http://www.bostonherald.com/news/regional/view.bg?articleid=1297999 What do potheads in Massachusetts have to do with sovereign debt? Nothing, but there is an interesting parallel between the two.

Mr. Loudpack owes the state $1000 for some unpaid possession citations. The state, quite understandably, needs its money. So they go to Mr. Loudpack's house. Loudpack is unemployed, like many of his drug-using friends, who get high when they can to relieve the intense stress and boredom of not having a job. He has no savings, no car, no jewelry. His only possessions (pun intended) are some blunt wraps, a ratty couch, an old CD player, and a bunch of burned CDs.

So what can the state do? It could take Mr. Loudpack's couch and CD player, but it would cost manpower to pick up the items from the house and cash to store them somewhere. Then what would happen? The city could sell the items for about $50, far less than they have already spent confiscating them, so Loudpack would still owe the $1000 and the city could be out even more money.

The city could send Loudpack to jail, but what would that accomplish? Our prisons are overcrowded precisely because we imprison minor drug offenders. Even if there was room for our hero, the state would spend $10-30K per year housing, feeding, and "correcting" Loudpack. The original ticket would not be repaid, the state would be out the cost of the imprisonment, and Loudpack would probably come out of jail and cause even more problems.

So what can the state do? Nothing. At least, nothing intelligent that would put the state in a better position than where it started. No one, particularly the state, can wave a wand and put $1000 in Mr. Loudpack's pocket. If he does not have the money, he cannot pay. Let me say that one more time: if he does not have the money, he cannot pay. This is a crucial, but almost completely ignored, fact in sovereign debt.

It is now the year 2050. For the sake of easy math and me not having to look up the actual projections, let's say China owns $10 trillion of America's outstanding debt. America has continued to grow steadily but slowly, and has done little to reduce its overall deficit. What could China do if America started acting like Massachusetts potheads?

The answer, as I have said before, is the reason I am unconcerned about the deficit: nothing. If we do not have the money, we cannot pay. Like you the last time you loaned Uncle Larry $50, China will slowly understand that it will never see its money again, be pissed for a long time, but in the end, will never get its money back.

This situation is slightly different from Mr. Loudpack, but the variations are slight. Ignoring America's absurdly powerful army, could China come over and confiscate our most valuable assets? Institutions of higher education are hard to transport. Military equipment would be great collateral to seize, but like Loudpack and the plant growing in his closet, as soon as we heard a knock on our door we could hide it all pretty well.

As much as the state and China would like this to be the case, it is impossible to make Loudpack and Americans in general work harder, and it is idiotic to think that anyone could say the magic word and money would pop up to pay everyone's debts.

So, ease up, Massachusetts and China. We're jamming out to some Eric Dolphy, and we'll get you your money when we have it. In the meantime, can we borrow $50 for cab fare to an interview tomorrow?