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… is from page 33 of my emeritus colleague Richard E. Wagner’s and the late James D. Gwartney’s excellent 1988 essay “Public Choice and Constitutional Order,” which appears as chapter 2 in Gwartney & Wagner, eds., Public Choice and Constitutional Economics:

In effect, constitutional order is a mutually advantageous treaty among what would otherwise be warring factions – a treaty which promotes the substitution of wealth-creating trade for wealth-reducing plunder.

DBx: Yes. Yet constitutional order requires a constitutional morality and not only ink on parchment.

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The Editorial Board of the Wall Street Journal makes a strong case that “the tech investment boom helps to offset damage from tariffs.” Two slices:

The progress of artificial intelligence has been astonishing, and now we know it’s helping the overall U.S. economy much faster than most thought. That’s the main story from Thursday’s first quarter GDP report, with AI-related investment driving most of the 2% growth. Meantime, the personal consumption expenditures (PCE) price index rose at an annual rate of 4.5%. You don’t need ChatGPT to tell you that President Trump’s tariffs are hitting consumers.

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The AI investment boom and Mr. Trump’s tax cuts—especially the business expensing provisions—are helping to offset the damage from his tariffs. But tariffs are a tax, and taxes hurt growth. Mr. Trump’s willy-nilly imposition of border taxes has also fueled uncertainty, which makes it difficult for businesses to plan investments.

Tariff costs will vary by the particular business and individual, but most Americans are getting stung whether they know it or not. Our friends Michael Solon and Phil Gramm wrote in these pages this week that the $195 billion in new tariffs that were collected last year swamp the $188 billion that taxpayers will receive in lower federal tax liability for 2025 thanks to last summer’s tax cuts.

The Washington Post‘s Editorial Board wisely rejects Bernie Sanders’s ignorant fears of AI and his call for the governments of China and the United States to cooperate in stifling it. Here’s the Editorial Board’s conclusion:

The enormous economic upsides — in medicine, productivity, scientific research — are why neither side can afford to slow down. And the competition, between labs and nations, is not the catastrophe Sanders describes. It is the mechanism most likely to ensure the technology is developed fast and broadly diffused.

Wall Street Journal columnist Joseph Sternberg asks, with Americans in mind as the point of reference: “Do Europeans understand how poor they are? And what will happen when they find out?” Two slices:

The widening gap between American and European prosperity is among the most important facts of the global economy. The clearest manifestation is the chasm in per capita gross domestic product: $94,400 in the U.S., according to the International Monetary Fund, compared with $65,300 in Germany, $61,000 in the U.K. and $52,000 in France.

While America’s prosperity advantage isn’t new, today’s scale is. From a fairly narrow edge throughout the 1980s, the gap widened a bit in the 1990s. Since 2007, however, European per capita incomes have more or less stagnated while the U.S. has enjoyed another growth spurt.

I know what you’re going to say, and it’s no excuse. The U.S. per capita figure is flattered by a small cohort of fabulously successful companies, which create a cohort of fabulously wealthy entrepreneurs. But those companies could just as easily plant their headquarters in Europe (some are even European by birth) and skew the per capita data there instead. Switzerland amps up its per-capita GDP to $126,000 by attracting finance and pharma.

This is another indictment of European shortcomings. The wealth skewing American per capita economic data is a result of innovation and entrepreneurship. Europe lacks America’s per capita output not because it lacks American tech companies and billionaires but because it lacks American-style productivity growth capable of creating tech companies and billionaires in Europe.

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A common refrain in Britain, for instance, is “But we have the National Health Service, and in America everyone has to pay huge sums for medical care.” The people who say it don’t understand how enlightening the observation is. The NHS launders money the indebted government doesn’t have into terrible health outcomes. This feels like a benefit because it conceals from patients the true cost of their care, while its shortcomings relative to other countries are noticeable only to policy nerds. That’s how most of Europe’s welfare states work.

Scott Winship reports that “Chicago’s ‘disappearing middle class’ can be found in its proliferating upper middle-class neighborhoods.” A slice:

Analyses that find a hollowed-out middle invariably rely on definitions of the middle class that peg thresholds to how the typical family is doing. In that case, even if everyone is better off over time in inflation-adjusted terms, if the middle’s gains are stronger than those of families lower down, more people can fall short of “the middle.” The Pew Research Center, for example,  that the share of families that were “lower-income” rose between 1971 and 2023, even though the purchasing power of those lower-income families rose by 55 percent. The explanation for this seeming paradox is that “middle-income” families saw a 60 percent gain, making it harder to reach the middle-income threshold if income rose more slowly than that.

The point of my paper with [Stephen] Rose was that claims of a “hollowing out” of the middle class wrongly reinterpret widespread gains across the income distribution as rising insecurity and declining living standards. Unbeknownst to us, a perfect example of this misinterpretation appeared a week before we published our report in Chicago magazine. The offending article title  that “Chicago’s Middle Class Is Disappearing.” My reanalysis of the data behind the piece indicates it would be difficult to articulate a more misleading conclusion. Fewer Chicagoans live in middle-class neighborhoods than in 1970—but only because more live in richer neighborhoods.

My intrepid Mercatus Center colleague, Veronique de Rugy, writes about the marriage gap. A slice:

I’m a libertarian. I don’t care whom, or if, you marry. Yet I’m reminded that there is a problem by a new report from the American Enterprise Institute. Edited by Kevin Corinth and Scott Winship, “Land of Opportunity: Advancing the American Dream” covers a broad range of challenges facing the country today, from the cost of living and workforce development to education, crime, and the erosion of community life.

The authors are not culture warriors. They are empirical economists. But among their most important findings are those dealing with the collapse of the American family and what the government has done to accelerate it.

From economist Robert VerBruggen’s chapter on the erosion of married parenthood, I learned that in the mid-20th century, only one in 20 children were born out of wedlock. Now it’s two in five. I also learned that America has the world’s highest rate of children living in single-parent households: 23 percent in the U.S. against an international norm of 7 percent.

Antón Chamberlin explains this reality: “A job’s wage is not a measure of dignity — it’s a reflection of economic value. Confusing the two leads to policies that undermine opportunity.” A slice:

Imagine someone who chooses to manufacture horse-drawn carriages in the modern United States. Outside of niche markets, like Jackson Square in New Orleans, demand for such a good is minimal. Call him James. He is producing something very few people want, and the economic value he is, therefore, generating is quite low. Accordingly, the wage that could be sustained by his line of work will also be low.

James, however, is not discouraged. He insists that he deserves a “living wage” simply by virtue of being employed.

The absurdity of the demand should be apparent. It is not a question of the dignity of the work. Let us assume his craftsmanship is top-notch, and he is obviously not engaged in the production of anything morally objectionable. Yet, the value James creates is limited relative to other uses of labor and capital. So much so that, economically speaking, James is not even engaged in production but consumption.

Paying him a high wage, then, would require diverting resources away from more valuable activities. In effect, this would mean asking others to subsidize James’s “production” that consumers have already overwhelmingly revealed to be of little value. If James wishes to continue this work for personal satisfaction, he is free to do so. But it does not follow that others are obligated to sustain it.

The Wall Street Journal‘s James Taranto reveals the fraud that has long been a driving force at the Southern Poverty Law Center. Two slices:

Perhaps the most contentious statement of Donald Trump’s career has been his assertion in August 2017 that there were “very fine people on both sides” of the agitation in Charlottesville, Va. Mr. Trump was right in more ways than he realized—at least one person was on both sides. Meet F-37, a figure in the indictment a federal grand jury in Montgomery, Ala., handed up last week against the self-styled antiracist nonprofit Southern Poverty Law Center.

“F-37 was a member of the online leadership chat group that planned the 2017 ‘Unite the Right’ event . . . and attended the event at the direction of the SPLC,” the grand jury alleges. “F-37 made racist postings under the supervision of the SPLC and helped coordinate transportation to the event for several attendees. Between 2015 and 2023, the SPLC secretly paid F-37 more than $270,000.00.”

F is for “field source,” the SPLC’s term for inside informants it paid to gather intelligence on white-supremacist groups. According to the indictment, “between 2014 and 2023, the SPLC secretly funneled more than $3 million in SPLC funds to Fs who were associated with various violent extremist groups.” Among these, the indictment says, were F-9, who got a cool million over a decade for activities that included stealing documents from the neo-Nazi National Alliance, and F-39, whom the SPLC paid $6,000 to take the rap for F-9’s theft.

The SPLC raises money and sustains its relevance by stoking the perception that white supremacy is pervasive and influential. I have argued since 2008 that this aligns the center’s interests with those of supremacist groups. My point received insider validation from a 2019 New Yorker article by journalist Bob Moser, whom the SPLC hired as a writer in 2001. “Though the center claimed to be effective in fighting extremism, ‘hate’ always continued to be on the rise, more dangerous than ever, with each year’s report on hate groups,” Mr. Moser wrote. He and his colleagues came up with a mordant slogan: “The SPLC—making hate pay.”

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To observe that the SPLC practices journalism isn’t to give it a seal of approval. To the contrary, it is to insist that the center’s work be judged by the ethical standards of journalism. In America at least, respectable journalists don’t pay sources for information—much less hire sources to obtain information illegally, as the SPLC allegedly did with F-9. We don’t deliberately deceive our readers, as the SPLC allegedly did by attributing F-9’s theft to F-39 and by publishing an exposé of F-42 that concealed the most interesting and pertinent fact about him—that he was on the SPLC payroll.

Journalists like Mr. Page don’t understand the SPLC because such clarity would reveal that this journalism scandal implicates their own organizations. Mr. Moser noted in 2019 that the SPLC’s hate-group list “remains a valuable resource for journalists.” News outlets frequently pass along other SPLC work with a gloss of expert authority. They couldn’t do that if they acknowledged the center for what it actually is—a competitor, and a particularly disreputable one.

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… is from page 447 of my old international-trade professor Fritz Machlup‘s 1964 collection, International Payments, Debts, and Gold:

That is to say, we shall have to ask whether an autonomous capital export from A to B was spontaneous lending on the part of the A capitalists or spontaneous borrowing on the part of B borrowers.

DBx: The word “lending” above includes not only literal lending, but any investments by people in country A in country B. (On page 451, Machlup writes of “an increased demand for holding foreign assets” by the people of A.)

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Too often, discussions of a country’s trade (or, more generally, current-account) deficits assume that such deficits arise only when people in the trade-deficit country borrow money from abroad – and, indeed, not only borrow money from abroad, but borrow money from abroad to be used to pay only for increased current consumption in the trade-deficit country. If this assumption were correct, then it would be true that a country’s trade deficit is financing current consumption in a way that makes the residents of that country poorer than they would otherwise be.

But not only is this assumption not universally correct, at least in the case of the U.S. it isn’t even usually correct. When a country runs a trade deficit, that “deficit” need not be caused by residents of the “deficit” country paying for current consumption with funds borrowed from foreigners. Trade deficits can be – and often are – the accounting result of foreigners taking advantage of an attractive investment climate in the trade-deficit country. Trade deficits brought about by such entrepreneurial cross-border investments not only in practice do not necessarily either put the residents of the trade-deficit country further into debt to foreigners or reduce the net wealth of these residents, trade deficits brought about by such entrepreneurial cross-border investments do not have this effect necessarily even in theory.

The U.S. experience with now an unbroken 50-year stretch of annual trade deficits is solid evidence against the notion that trade deficits necessarily drain wealth from the residents of trade-deficit countries.

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GMU Econ alum Romina Boccia decries the U.S. government’s inflation-fueling fiscal incontinence. A slice:

When debt grows persistently faster than the economy, it eventually forces difficult choices. Investors begin to question how the government will meet its obligations. There are only three answers: raise taxes, cut spending, or allow inflation to erode the real value of debt. When the first two options are repeatedly postponed, inflation becomes the likely path of least resistance.

This is the risk of so-called fiscal dominance. Even a formally independent Federal Reserve cannot ignore the consequences of excessive borrowing. If interest costs rise rapidly and financial markets come under stress, the Fed will face pressure to lower borrowing costs at the risk of fueling inflation.

In that world, debates about whether a Fed chair is politically independent miss the bigger picture. The real danger is that fiscal policy leaves the central bank with no good options.

Also warning of the U.S. government’s fiscal incontinence is Jeffrey Miron.

National Review‘s Charles Cooke disses opponents of data centers. A slice:

Well, you can count me out from all that guff. In its fervor, the sudden disdain toward “data centers” reminds me of nothing more than the recent freakout over 5G, which was inexplicable at the time and remains steadfastly so today. For those who are unfamiliar, 5G technology uses radio waves that sit within the non-ionizing portion of the electromagnetic spectrum — a fact that is also true of 4G and 3G and 2G and over-the-air television and the old wooden radio on your great-grandmother’s side table. Scientifically, there was nothing whatsoever about iteration number five that made it a better candidate for panic and for conspiracy theories than the other developments that had been deployed since the time of Guglielmo Marconi. And yet, for some reason, tens of millions of people have come to throw the term around as if it were meaningfully distinct from its predecessors. There’s an old Victor Borge bit from the 1980s, in which he describes his grandfather’s attempts to develop a popular drink. He started with “3-Up,” the joke goes, but that failed, so, undeterred, he tried 4-Up, 5-Up, and 6-Up, before finally giving up and dying. “Little did he know,” Borge says, “how close he came.” Why 7-Up? Good question. Why 5G?

And why “data centers”? Currently, there are around 5,000 data centers across the United States, with tens of millions of servers running inside of them, using hundreds of megawatts of power. And how could it be otherwise, when, as a society, we are so enthusiastic about the results? The introduction of AI is likely to lead to the production of around 1,300 new data centers — many of them at hyperscale. But this is an expansion of the status quo, not a shift. What, I wonder, do the newfound enemies of these projects believe that the current internet runs on? There is, as ought to be obvious, no such thing as “the cloud”; there are just computers, in racks, inside enormous buildings that were constructed for the purpose of holding computers in racks. You are reading this piece because of packets that were transmitted from a data center. Your email works the same way. So do Netflix, Amazon, Spotify, your bank, your kids’ school’s website, the text messages you send your brother, and your annual Fantasy Football league. We already live in a data center world. We have for at least 30 years.

Even stranger is the opposition to data centers from those who lament the “deindustrialization” of the United States, and the supposed lack of well-paying jobs. I am a conservative, and so, to some extent, I understand the pull of nostalgia. But, in 2026, this is what “building things” looks like. The federal government can impose as many tariffs and industrial policies as it wishes, but it will not be able to halt the passage of time. Alas, the textile mills and cereal factories are not coming back. But computers — the great technology of our era? That is a different story. This year, American companies are set to spend three quarters of a trillion dollars on new data centers, much of it in exactly the sort of areas that are constantly described as having been left behind. At present, the median salary for an electrician who works in data center construction is $120,000. For HVAC technicians, that number is $90,000; for mechanical engineers, it is $100,000; and for site engineers, it is $135,000. Personally, I do not understand why it is considered by some to be more noble to work in a cannery than in a data center, but, regardless, only one of those jobs is currently on offer. What is to be gained by railing against that fact?

Jennifer Huddleston and Juan Londoño are no fans of the GUARD Act – a piece of legislation sponsored by Sen. Josh Hawley (R-MO). A slice:

The Senate Judiciary Committee is considering the Guidelines for User Age-verification and Responsible Dialogue (GUARD) Act. Introduced by Senator Josh Hawley (R‑MO), the bill would restrict or even prohibit minors’ access to various artificial intelligence (AI) products. Like age-verification proposals for online services, this bill is unlikely to survive constitutional scrutiny. But beyond its likely unconstitutionality, Sen. Hawley’s approach endangers users’ privacy, limits parental rights, and locks minors out of beneficial uses of AI.

AI tools, including chatbots, can benefit young people in many ways. This includes online tutors, practicing a foreign language, or developing an array of skills. AI tools have also become ubiquitous in many products, doing everything from providing tech support to helping customize a burrito (and perhaps being able to write code in the process). A February 2026 survey by the Pew Research Center found that over half of US teens use chatbots for help with schoolwork. The GUARD Act would prevent those under 18 from accessing any of these products.

John Early’s letter in today’s Wall Street Journal is excellent:

The economic and statistical analysis in William Galston’s “The Upper Middle Class American Dream” (Politics & Ideas, April 22) doesn’t show the whole picture. He cites data showing that a greater proportion of people have moved into the upper-middle class but ignores the necessarily complementary fact that the proportion of families with lower incomes has shrunk significantly.

For example, he laments that the proportion of smaller homes on the market has declined from 30% to 20%. The income data he cites shows that the upper-middle income earners have increased from 10% to 31% of families. But he ignores the complementary fact that the proportion of families who are lower income has declined by 24 percentage points. So, what’s the problem if the homes presumably available to these lower-income families have declined by 10 points? The relevant consumer base has fallen 24 points.

He’s concerned that while the rise in median income has outpaced the consumer price index’s roughly sixfold rise over the last 50 years, the median house price has risen 10-fold. But that comparison is specious. The Consumer Price Index compares prices of identical items over time or adjusts the price change so that it is equivalent to comparing identical items. If those adjustments weren’t done, the CPI would rise much faster—for example, by comparing the price of a cellphone that only makes phone calls to one that plays movies, answers nearly any question and manages your calendar. That’s exactly the type of price comparison you get looking at median house price. The average house today is a much different product than 50 years ago. Thirty-seven percent more of the total housing stock has two or more rooms per person and around 75% more have a dishwasher. The proportion with two bathrooms is three times as large and that with central air conditioning four times.

Only looking at part of the picture misinforms the public—and policymakers who should know better.

The Editorial Board of the Washington Post urges that which should immediately – but that which will no time soon – happen: the U.S. government should stop classifying Vietnam as a non-market economy. A slice:

The Southeast Asian country, a top 10 U.S. trading partner, grew by 8 percent last year, driven largely by its robust private sector. Yet the Commerce Department still classifies Vietnam as a “non-market economy.” That places the country in a league with China, Russia and Belarus.

The designation is significant because it means that several Vietnamese exports to the United States are slapped with large, punitive antidumping duties. Plywood from Vietnam gets hit with a 195 percent surcharge. Frozen shrimp get a 26 percent extra tax. These costs, of course, are passed on to American buyers.

Vietnam is still tightly run by the Communist Party, which stifles dissent and restricts free speech. Human rights organizations estimate the country of more than 100 million holds between 160 to 200 political prisoners, including bloggers and land rights activists.

Yet the era of a state-run command economy is effectively over. Vietnam first began significantly embracing free markets 40 years ago. Today, more than 80 percent of the country’s total workforce is employed in the private sector, which accounts for more than half its gross domestic product. The most recent party congress officially recognized the market as the “most important driving force” for the economy.

Roger Pielke Jr explains that “you can’t trust ‘climate economics.'” A slice:

The scientific journal Nature in December retracted one of the most influential climate economics papers of the past decade. The paper, by Maximilian Kotz, Anders Levermann and Leonie Wenz, claimed that unmitigated climate change would cost the global economy $38 trillion a year (in 2005 international dollars) by midcentury. It was the second-most-mentioned climate paper by the media in 2024, according to Carbon Brief. The paper was cited by central banks and governments to justify aggressive climate policies.

Then it collapsed. The authors acknowledged that its errors were “too substantial” for a correction. Nature retracted the paper more than 18 months after first learning of its problems.

Most media coverage treated this as an unfortunate aberration in what is otherwise settled science. The retraction, however, isn’t a one-off. It revealed a crack that runs much deeper into the foundation of climate research.

Economists Finbar Curtin and Matthew Burgess at the University of Wyoming released a preprint on April 20 that points out the broader flaws with current climate change research, making the Kotz et al. retraction look like small potatoes. Their paper, “The Empirically Inscrutable Climate-Economy Relationship,” starts from the most basic question in climate economics: Can researchers actually measure how climate affects the economy from the historical record?

Their answer is no.

Anne Bradley, Dominic Pino, and Ted Tucker talk about Adam Smith.

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… is from page 326 – the final page – of Arvind Panagariya’s remarkable 2019 volume, Free Trade and Prosperity:

In sum, if the devotees of protection want to persuade scholars to adopt their viewpoint and not mislead unsuspecting and innocent policymakers, they need to offer much more evidence in favor of their case. It will not suffice to offer half-baked arguments for infant industry protection, often relying on the post hoc fallacy, and point fingers at cases in which liberalization failed to deliver. If they insist that free trade advocates produce iron-clad evidence of a causal link between trade and growth, they must subject themselves to the same standard of proof. Or at least they must produce evidence that matches what free trade advocates have produced. To date they have not even come close to doing so.

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Phil Gramm and Mike Solon decry “the Trump tax increase of 2026.” A slice:

Republicans are counting on voters being pleasantly surprised by larger-than-expected tax refunds this spring thanks to new tax cuts from the One Big Beautiful Bill Act. Republican lawmakers hope this will ameliorate what Democrats call the “affordability crisis” and make it possible for the GOP to maintain control of Congress. The problem is that although the government is putting money back into taxpayers’ pockets on the one hand via tax refunds, it is taking more money out via tariff-driven price increases, leaving Americans worse off financially.

The Trump administration insists that other countries are eating the cost of tariffs. That is a myth. If foreigners were absorbing the costs, import prices would drop: To keep their products at the same prices in U.S. stores, foreigners would have to lower their products’ prices to make room for the tariff. Instead, a Bureau of Labor Statistics analysis found that “U.S. import prices were unchanged (0.0 percent) in 2025.” It’s hardly surprising, therefore, that a Federal Reserve Bank of New York analysis finds that “there is 100 percent pass-through from tariffs to import prices, and therefore on U.S. consumers and firms.”

The Joint Committee on Taxation estimates that taxpayers will receive about a $188 billion reduction in federal tax liability for 2025 that they wouldn’t have received if the president’s tax cuts hadn’t become law. Those refunds and tax benefits, however, have been more than offset by the $195 billion in new tariffs collected in 2025.

Things will get worse in 2026. The Congressional Budget Office projects that Mr. Trump’s tariffs will generate $331 billion this year, while the CBO estimates the new tax cuts will save taxpayers $230 billion. Families and businesses will be worse off on net. This will matter in the election. By October, Mr. Trump’s new tariffs from his second term will have cost American consumers and businesses $443 billion, while the tax cuts will have provided them with $379 billion. If the president successfully restores his tariffs to the levels where they were before the Supreme Court’s decision in February, the tariff tax in 2026 will be 44% larger than the new tax cuts contained in the Big Beautiful Bill.

John Puri explains “how inflation and tariffs impoverish people differently.” Two slices:

A current refrain in financial commentary is that tariffs — taxes on imported goods, paid by Americans — increase inflation. This is not technically accurate. Tariffs certainly raise the cost of items on which they are imposed. That is their design: Protectionists favor tariffs because they make foreign goods more expensive, driving people to buy domestic alternatives that are costlier to produce.

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Tariffs do not merely redistribute purchasing power, making one set of consumers better off at the expense of others. They destroy everyone’s purchasing power by limiting how it can be employed.

Iain Murray deserves credit for writing so intelligently about credit.

David Henderson makes clear that “central planning messes up spontaneous order.”

Eric Boehm argues that the “Trump administration’s review of ABC’s broadcast licenses looks Like ‘illegal jawboning’.”

Arnold Kling ponders political extremism.

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Pondering my latest disagreement with John Tamny on deficit financing of government spending, I now realize that I did indeed misunderstand his argument. My misunderstanding was a careless, if innocent, effort to make sense of his argument. I apologize for it.

One common argument that Keynesian-type economists, such as Paul Krugman, offer when they wish to excuse deficit financing is to compare the amount of outstanding government debt to total GDP and then say “See! Total GDP is large enough to allow the government to easily repay its debt by raising taxes in the future, so government debt isn’t a problem.” This argument effectively treats the income of the citizens as property of the government – as property that secures the government debt and, hence, that encourages creditors to continue to lend to the government at low interest rates.

In the earlier version of his essay, John wrote “unless Americans were already excessively taxed … there’s no way Treasury could borrow as it does.” The ellipses in this quotation signal my exclusion of a subordinate clause the meaning of which I couldn’t grasp, but one that seemed not to change the fundamental point.

(John has since changed the wording to this [original emphasis]: “Unless Americans were already excessively taxed now such that lenders trusted tax revenues, there would be very little U.S. debt.” I interpret this new wording to have the same intended meaning as the earlier wording.)

But I erroneously read John as saying this: “If Americans were excessively taxed … there’s no way Treasury could borrow as it does.” I assumed that his use of “unless” was a careless wording choice that would have been improved by “if.” On my reading, John’s argument becomes quite the opposite of what he meant; it becomes a version of the Keynesian argument commonly offered by the likes of Krugman.

Now I understand that John believes that the government is able to borrow the gargantuan sums that it does only because Americans are today taxed excessively. John’s argument is emphatically not the Krugman-Keynesian one, and so I apologize for my earlier misreading of his argument.

But now a new problem for John’s argument emerges: A citizenry excessively taxed today – or so it seems to me – is one that is less likely, not more likely, to be able to be taxed even more heavily in the future in order for the government to obtain the revenues it needs to service and repay its debts. Just as creditors are less likely to extend credit on easy terms to a firm that is being drained of wealth by lots of embezzlement, creditors are less likely to extend credit to a government whose citizens are already excessively taxed, for such excessive taxation both is more likely to intensify tax resistance in the future as well as to reduce the future tax base by shrinking the economy.

Yet for John, what makes government, in the eyes of creditors, an especially attractive borrower is precisely its excessive current taxation of its citizens. In John’s view, today’s abuse of taxpayers is a signal that government is willing and able to abuse tomorrow’s taxpayers even more. I write “even more” because government debt is growing, so taxation of citizens must become ever-more excessive.

I remain unclear why John nevertheless frequently criticizes Veronique de Rugy, Romina Boccia, me, and others for worrying about growing government indebtedness. Such indebtedness, again, requires even greater abuse of taxpayers in the future. Wishing to avoid this increasing abusiveness of taxation should lead John to oppose increasing government indebtedness.

…..

If my new reading of John is correct, it seems that he should be a leader in the ranks of those of us who warn against deficit financing. I gather, though, that he’d prefer that a greater portion of government expenditures be funded with debt and a lesser portion with current taxes. But if government reduces its current intensity of taxation, then – on John’s own theory – it dims the very signal that increases its attractiveness to creditors. It sends a signal that it’s less willing to tax its citizens in the future – causing, in John’s theory, creditors today to be less willing to lend on easy terms. John’s argument, then, must be the ultimate starve-the-beast one: A dramatic reduction in taxes today will deny government access to resources both from current taxpayers and from creditors who are reluctant to lend to a government that signals its unwillingness to tax its citizens excessively. Unfortunately, starve-the-beast is bad economics.

While I don’t buy John’s theory, I again at least concede that it’s very different from – indeed, the opposite of – the Keynesian-Krugman one that I’d earlier accused him of using. One reason why I don’t buy John’s theory is that, if only because the government can sell its bonds to the central bank, it remains the case that deficit financing encourages special-interest groups to obtain government spending that will be paid for largely by other people (here, by the general populace through inflation). I also, for the record, believe – apparently unlike John – that deficit financing keeps today’s tax bill lower than it would otherwise be while the burden of repaying that debt is, when not reduced by inflation, paid by future generations.

…..

A final point. John mistakes what Adam Smith, James Buchanan, and other budget-deficit hawks mean by the shifting of the fiscal burden. The argument is not that today’s government spending and actions don’t cause current harm. Of course they often do, as John’s examples amply document. Instead, the argument is that the persons given the burden of paying the bill for the government spending that gives rise to these current harmful activities are future citizens-taxpayers.

Suppose that a majority of today’s citizens-taxpayers mistakenly believes that spending huge sums of money to convert to net-zero carbon emissions is a good idea. But this majority is too stingy to have its taxes raised in order to pay for all that government must do to attempt this conversion to green energy. So the government borrows the money. These borrowed funds are then spent on this energy conversion only to discover within a few months that this forced attempt to achieve net zero is inflicting extreme damage on the economy.

John treats this damage experienced today as disproving the classical-economics-Buchanan insistence that the burden of repaying government debt falls on future generations. But John is mistaken: the government debt must still be serviced and repaid, and the obligation to do so (assuming away default) falls on future citizens-taxpayers. The irony here is that this destructive government program – destruction that is indeed experienced today – would not have occurred if government had no access to deficit financing.

In short, the classical-economics-Buchanan argument is not that deficit-financed current government actions impose no harms today. Instead, it’s that when government acquires through deficit financing the resources it uses to perform the actions that inflict those harms, future citizens-taxpayers are handed the bill for repaying the creditors who loaned those resources to the government. And so if deficit financing of government spending were prohibited, government today, and in each day in the future, would be less likely to inflict harm today because it would have less access to resources.

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… is from Thomas Sowell’s April 2nd, 2013, column titled “Could Cyprus Happen Here?”:

When the federal government spends far beyond the tax revenues it has, it gets the extra money by selling bonds. The Federal Reserve has become the biggest buyer of these bonds, since it costs them nothing to create more money.

This new money buys just as much as the money you sacrificed to save for years. More money in circulation, without a corresponding increase in output, means rising prices. Although the numbers in your bank book may remain the same, part of the purchasing power of your money is transferred to the government.

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I apologize, sincerely, to John Tamny. I allowed my intellectual disagreement with him on questions of the causes and consequences of government debt to prompt me to post at Café Hayek a response to John that is plausibly seen as ungenerous (although my quotation, in that post, of his words were cut and pasted from his original text, leaving out only a subordinate clause the meaning of which I did not grasp and that seems to me did not alter the underlying message of the quoted passage).

John is a well-meaning, thoughtful, and important scholar who is a true champion of liberalism and limited government. He’s someone with whom my disagreements are tiny when put beside my agreements with what he says and writes.

That I gave offense to John – that I failed to interpret his theory of deficit financing by government as generously as it deserves to be treated – is my bad, a bad act that I regret and for which, again, I offer my sincere apologies.