Hamilton's Corollary

If you teach at a college, one thing you notice is that the economics professors aren't rich. That's because they don't understand how the economy works or what will happen next.

This should not lead me to dismiss all economists. Adam Smith, the first capitalist economist, warned us that capitalism better be well regulated or greed would destroy the world. We should have listened to him.

Alexander Hamilton added a corollary important to democracies. If you let people vote, they will ask for food to sustain their lives. The government will borrow money to pay for food, going into debt. Chances are that it will never be able to repay the debt, but that won't matter, Hamilton realized, as long as the voters and the rest of the world don't notice. In short, it doesn't matter if you can repay the debt as long as people believe--mistakenly--that you will eventually pay it off. As long as people have faith in you, you can continue to borrow new money. And that is how government debt works--I'm  suggesting Germany and Greece read Alexander Hamilton.