Debt Default and the Limits of the Contractual Imagination: Pareto and Mosca Meet Buchanan

Abstract

Personal debts are obligations that people establish through agreement among one another, so it is easy to understand the general objection to defaulting on debts. Can such objections be reasonably extended in robotic fashion to public debts within democratic regimes? While a common piece of ideology claims that democracy is a system of self-governance, the reality is that governance always rests with a subset of the population. While there are clearly people who support public debt, it’s equally clear that a good number of people would prefer less public spending and lower future taxes. While some people are likely to regard public debt as an obligation, others are likely to regard it as an imposition. The extent to which people regard public debt as obligations or as impositions is surely a matter of the ideological resonance of alternative political programs, which belongs to the domain of non-logical action. Debt default is more a matter of the economics of conflict than of the economics of cooperation, and so is always a latent possibility that depends on momentary patterns of political coalition.