So, for the 19th year in a row, the Government Accountability Office (GAO) can’t audit the federal government’s finances because the books are such a mess.  There are so many things to which to object in that reality, but I’d like to focus on an observation from Truth in Accounting CEO Sheila Weinberg:

“If a corporation had this, what would happen is the lending market would lose confidence in them and it would be very hard for them to borrow any money,” Weinberg said. “If it was a publicly traded company, it would probably be taken off the market.”

This gets to the basic difference between investing in private companies and “investing” in the government.  Leaving aside people who invest in things for non-financial reasons, only two questions are relevant to investments: 1) will the recipient be able to generate the money to pay back the investment at a profit, and 2) will the investor be able to collect that money.

With a private company, the legal regime and the fact that company executives rely on fiscal health for their own incomes make the first question the more relevant:  Will this company make money?  With government, though, there’s no profit, so those who give it money expecting a return are investing in the government’s ability to take additional money from other people, and since government can change its own rules (short of the Constitution), investors are relying on politicians’ dependence on public opinion and addiction to debt.

In short, for those investing in government, it doesn’t matter whether the government runs smoothly, only whether it can confiscate enough money from other people to pay lenders and keep the borrowing going while also covering its internal waste and fraud.  The fact that so many people assume this about the federal, state, and local governments ought to give us pause about what we’ve allowed them to become.