The Return of War Bonds?

  • Share
  • Read Later
War bonds?

With George W. Bush making it all but official — "we’re at war" — Republican senators Mitch McConnell and Conrad Burns introduced legislation Friday to direct the Department of the Treasury to issue War Bonds for the first time since WWII. Paul O’Neill would set the terms — U.S. citizens would make the loan.

"War" bonds or not, this is government debt — the same thing both parties were railing against just a week ago. And while neither Democrat nor Republican will be uttering the words "lock box" for a very long time, this is also the return of the kind of sleight-of-hand accountancy by which politicians put spending overruns on the federal books under a heading that grants it political immunity.

[an error occurred while processing this directive]The House and Senate have already approved a $40 billion bill to fund rescue, security and law enforcement efforts in the wake of Tuesday's attacks — a figure which may or may not include an agreed-on-in-principle $2.5 billion bailout of the airline industry.

That may be only the beginning. When Bush promised this week that "terrorism will be the focus of this administration," he wasn’t only talking about the agenda at White House briefings or which Cabinet member gets to come into the Oval Office without knocking. He was talking about spending. The era of small government may be over.

Start with defense. A president who was publicly concerned about the state of military readiness will not hesitate to spend whatever is necessary to make sure his military does not embarrass him in whatever form of retaliation he chooses to wage. "Homeland defense" has been a miniscule expenditure in the pre-Tuesday world; it will not be anymore. And the formation of a government agency to deal specifically with the threat of terrorism — more intelligence, increased airport security, stiffer checks at U.S. borders — seems imminent, and it will have to have a budget big enough to impress.

Some of these shifts in what during budget debates are known as "spending priorities" will eventually have to be zero-sum games; the political desire for a balanced budget is real, and it has real economic benefits to America in terms of the bond markets and long-term interest rates. But for the immediate future, fiscal discipline is the last thing on anybody’s mind, and now that "we’re at war," war bonds are as good a way as any to pay for that $40 billion in relief funds and any other new defense expenditures that come along. Good for patriotism — maybe WWII wasn’t the "last good war" after all — and good for making the eventual bill go down easy with the voters.

There is one difference between a War Bond and, say, your average T-Bill — by definition, War Bonds aren’t fixed-term notes; they get redeemed by the government when the war is over.

And how are we going to know that?