Letter Re: State Government Debt Levels

I just finished reading one of the financial articles you linked in yesterday’s post.  The topic of the article was debt levels of U.S. states.  In it, the author broke down the debt burden of each state citizen; for example, a Californians’ per capita obligation is just over $16,000, while Texans are at a lower level of around $11,000.
So:  Two things.
First:  I think in doing this we are perpetuating the concept of the State’s (used here in the sense of a nation-state/political entity) authority to impose the public debt burden on non-sovereign individuals.  While I know that the sovereignty concept is hotly debated in many circles, for the purposes of this discussion I am strictly limiting that definition to one’s ability to create currency, conduct foreign policy, wage war, etc…  A sovereign entity may indeed, through processes (or around them….) encumber itself with debt.  In this regard a State is no different than an individual.  We see the same principal demonstrated in corporate activity: a corporation (literally-body: individual) conducts business in a manner that seeks to maximize shareholder value.  When things go well, shareholder value increases and dividends are distributed.  Conversely, corporate actions leading to losses, whether through market forces, loss of comparative or competitive advance or, in some cases, malfeasance, ultimately reduce the value of each share.  At this point the shareholders have various remedies available to them: they may sit tight and ride it out, they may express individual dissent by selling their shares, or they may choose to change management so as to correct the course of the fiscal ship.
The value of the corporation is decreased, or increased, by  several factors as we see above: consumers can choose (or not) to purchase goods from the corporation, management can change strategy, or shareholders can move to change leadership.  The political analogies to these three are as follows:
·         Consumer choice = any international interactions with the State.  Those interactions run the gamut from mutual aid and trade agreements to belligerency and armed aggression
·         Management strategy shifts = internal and external policy changes.  An example of internal policy change would be a requirement for  voter identification, and an external policy change would be adoption of an international standard or treaty
·         Change of management = elections, where the polity (authorized voters) take legal action to affirm or negate the candidate, or coups de etat, whereby the leadership of the polity is forcibly removed
So here we see the three methods by which change is affected.  In the case of the State encumbering (lawfully or unlawfully-not under review here) the citizens recourse is expanded by one further item, that of disassociation with the State (for the purposes of this discussion this option remains tabled).  The citizen, lawfully or unlawfully encumbered by the state, may choose the options listed above in order to remedy the condition with which the State has burdened her. 
The question on which this issue turns is as follows:  does the citizen bear personal fiduciary liability for the encumbrances of the State?  If we can agree that the above-listed methods of redress are valid, and that, further, that just as the corporation is fiscally whole and separate from the fiscal wholeness and separateness of the shareholder, so too is the State fiscally whole and separate from the polity.  The natural course of events, then, flowing from fiscal dissolution of the State, does not in and of itself mean the fiscal dissolution of the polity.  We can, however, easily discern that due to the dependencies between citizen and State, the dissolution of the State will most certainly result in some degree of degradation of the individual (and this is the premise behind JWR’s novel, Survivors). 
So yes, the State can encumber itself, and yes, the reduction of the State’s performance (in the contractual sense, performance means adhering to the terms of the contract) translates into a reduction of the State’s international and domestic relations.  And it may indeed result in the dissolution of the State.  But in and of itself, Statal (‘of’ the State) dissolution does not equal individual dissolution.
Second:  notwithstanding the arguments re. ‘who owns our national debt’ and ‘the Chinese’ (insert raised fist here), not all sovereign and/or public debt is bad.  See this link for a viewpoint contrarian to the ‘all public debt is bad’ argument:  http://www.multiplier-effect.org/?p=3192 
The issue we are all dancing around/thinking of/writing about is balance.  What is the proper (a subjective term) level of debt to benefit?  In the life of an individual, perhaps mortgage debt is seen as ‘good’ and credit card debt is seen as ‘bad’.  Well, perhaps.  This is subjective territory.  So a little explanation is called for:
I tell my students (civil-military operations) that the way to think about subjectivity v. objectivity is this:  an ‘objective’ utterance is one made in reference to an observable, measurable, mutually recognized ‘thing’.  The physical.  A ‘subjective’ utterance is ‘subject to debate’: in other words, open to more than one interpretation. 
So when someone says that public debt is ‘bad’, we need to be rigorous in our assessment of the term.  Bad with regard to degradation of national security?  National security as measured how?  By whom?  Over what time period?  In relation to which set of potential negative influencers?
The trepidation most of us feel when thinking of the current level of debt (not to be confused with deficit) is likely well-founded.  Individuals tend to think of things in relation to themselves; in other words, I earn $56,000 yearly, and I owe $212,000 on my home, and perhaps $12,000 on a car loan.  So my yearly income relative to my total debt (good/bad/ugly) is 1:4.  So we tend to use a similar ratio when thinking of national debt.  As such, we would look at the yearly salary of our State (U.S. GDP  $15 trillion (CIA World Factbook 2011)) and a debt of $15.9 trillion (http://www.usdebtclock.org/ ), rendering a ration of 1:1.
So from a purely mathematical standpoint, why worry?  If the average U.S. citizen earns $49,000 (ibid) and has a personal obligation in excess of 1:1, that means the State is actually behaving in a more conservative manner than the individual.
Here, then, is the reason I spoke earlier of the subjective v. objective:  I don’t earn $56,000, and I don’t owe $224,000.  I earn more, and owe less.  So my objective condition informs my subjective opinion, and both of those items are substantially different than yours, or his, or hers.  The reasons I earn my own level of income and owe my own level of debt are my reasons, not yours.  Hence, the importance discerning the subjective from the objective.
Now, back to the lead paragraph of this rant:   California v. Texas.  Objectively, California may have a larger debt than Texas.  Further, California may have a larger state GDP than Texas, rendering a different (perhaps better, perhaps worse) income to debt ratio.  That is a state problem.  If, however, the state’s fiscal performance incurs remedy from its creditors, the polity suffers.  And this is the heart of the matter: when governments opt to use the GDP to debt ratio as it relates to individual earnings v. individual debts, the state surrenders the protections offered by it to the polity. 
So what does all this mean?  It means that each time the state incurs additional debt, our fiscal lives are encumbered, and our liberties are further constrained.  So why can’t we, as citizens, stand together and demand that the state no longer have the power to financially encumber the polity?  We can. 
Vote conservative.

– X.