Monday, May 18, 2015

Why Government Deficits and Debt do Matter

Richard Ebeling emails:

Dear Bob,

I have a new article on the news and commentary website, “EpicTimes,” on, “Why Government Deficits and Debt Do Matter.”

The trillion-dollar-a-year Federal government budget deficits have subsided – for now. But according to the Congressional Budget Office, in a few years those budget deficits will begin rising once more, and again be over one trillion dollars in the year 2025.

Some free market economists like Milton Friedman have argued that it is total government spending that is the real cost and burden on the citizenry and taxpayers, not whether it is funded via taxes or deficit spending.

But the Keynesian-influenced demise of an earlier balance budget rule and practice has created a political environment that other free market economists like James M. Buchanan have called “Democracy in Deficit.”

Able to rationalize deficit spending on almost anything, politicians can create the illusion that voters can get something for nothing – government spending on desired programs and activities without having to specify where the funding will come from and who will pay it – “benefits” apparently without the full “costs” for providing them.

This makes deficit spending an institutional mechanism for continuous growth in the scope and size of government.

In addition, Buchanan pointed out the moral dimension of deficit spending and the resulting accumulated debt. What is the ethics of a system under which the current generation of voters can get some of what they want from government, but pass on part or even all of the costs of their special interesting programs on to future generations on whom the taxes will fall to pay back in the future what has been borrowed yesterday and today?

This makes a balanced budget rule – including as an amendment to the Constitution—a desirable policy goal. Also important is for Congress not to cede its authority on raising the debt limit. If a future Congress were to say “No” to such a debt ceiling increase, it would automatically impose a balanced budget rule on the government.


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