Political Economics

"A Country is not a Company." -- Paul Krugman

   Time was, high school girls took classes in Home Economics, on the premise that they would stay at home while their husbands held jobs, which the boys trained for by taking wood shop classes, auto mechanics, or print shop.
   Those days are gone, but a principle of basic economics remains that of what you do with what's available. In its original sense, the ancient Greeks had a manager who ran the household and decided what to do with what was available. When enlarged from a household level to a state level, the subject become known as Political Economics, or what the people of the polis, the entire city-state, did with what was available. And when academics of the 18th Century began studying the topic, they borrowed the ancient Greek concept as a label for what they were doing.
   Eventually, the first word of the phrase was dropped, and we now deal with the study of Economics, whether it be at a household, corporate, state, national or international level.
   However, to use the same strategies that are successful for a family or a corporation and use them as a national policy can be dangerous.
   For example, negotiating a "better deal" on bonds to pay them off at 50 cents on the dollar, or even less, as some corporations have done in bankruptcy proceedings, may be beneficial to the company, but harms people who bought the bonds. And since the company may wind up going out of business anyway, the investors may be happy to get even half the value of their bonds.
   But to do that with government bonds, as was recently suggested by Republican presidential candidate Donald Trump, in order to reduce the national debt, will bring higher interest rates on new bond issues, since people will fear for the safety of their investments. If, in fact, major investors take the risk at all.
   Historically, U.S. bonds have been deemed the safest of all investments, because they have the government's guarantee that the bonds will be redeemed at 100 cents on the dollar. This practice goes all the way back to the days of Alexander Hamilton, who insisted that bonds issued by the provisional government during the War for Independence be redeemed at full value, in order to build confidence in the government.
   So to start a policy of negotiating for a "better deal" on government bonds would bring higher interest rates, a lack of confidence in the government, and an overall increase in debt, rather than an alleged aim of reducing debt.
   The strategy of buying back bonds at less than face value may work well for a company heading for bankruptcy -- a ploy that worked well for Trump in several of his failed businesses -- but when applied to a country it will likely drive the nation into economic turmoil and bankruptcy.
   In short, "A Country is not a Company," as explained by Nobel economist Paul Krugman in his book of the same name (Harvard Business Press, 2009).