Monday, January 1, 2018

A Very Important Lesson Going Into 2018: Milton Friedman on the Government Deficit and Government Spending

Milton Friedman is very good below. His reasoning explains why President Trump's tax reform that will hurt some and help others will not benefit the economy overall.

The Trump tax reform, because there is no cut in government spending, is really just about shifting the method by which the government drains resources from the economy--to the degree the reform cuts taxes the funds required by government will be drained out of the economy by deficit spending instead of direct taxation.



  1. "There's a certain total amount of resources that the United States has available to it. Call it a hundred..."

    For this to make sense for Friedman's argument that follows, this appears to be a variation on Say's Law, variously stated, but something like: "One can only consume from the Value that one has created."

    Lotsa' mischief from the arguments that follow against this. The Keynesians will forever deny that the EXPLICIT "Value" obtained by postponing the payment of this Debt will ever be negative overall. The money spent "by vote" will be listed as a positive. The payment "in the future" will be listed as positive as well. It will be paid with cheapened dollars (Note that Friedman himself advocated a small inflation as a positive for overall commerce...).

    Friedman is good here, as you state RW. The problem is that the arguments may, as Einstein stated, be made as simple as possible, but not simpler. The magic incantation that slays the Keynesian Dragon is not a short one. "I refute him thus" works against rocks and Berkeley but not so well against Schumer's staff.

  2. I don't understand why Friedman draws a distinction between principal repayments and interest payments (of the latter, he says "... there is no resource cost"). In either case the private sector is compelled to transfer money -- which represents claims on resources -- to the bondholders.