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Public Principles of Public Debt

Here’s a letter to the editor of The University of Virginia Magazine:

I genuinely enjoy your publication, and am delighted to find in the Fall 2011 issue Ed Crews’s and Lee Graves’s admirable account of the debt troubles caused by Uncle Sam’s fiscal recklessness (“Our National ‘Time Bomb’“).

Were the Crews and Graves essay published by any institution other than U.VA, I’d not be moved to remark on it.  But given that it appears in the U.VA Magazine, I’m obliged to pick a nit.

Crews and Graves report that “Last fall [Peter G.] Peterson was awarded a Thomas Jefferson Foundation medal, the University’s highest external honor, for his role in addressing the nation’s fiscal situation. Harry Harding, dean of U.Va.’s Frank Batten School of Leadership and Public Policy, describes him as a personal hero ‘because he was so far ahead of his time in focusing on this issue of import today.'”

Mr. Peterson has indeed long highlighted the problem of America’s growing public debt, but well before he entered the scene, a U.VA economist (unmentioned by Crews and Graves) almost single-handedly revolutionized our thinking about deficit financing.

Prof. James M. Buchanan – who served on U.VA’s faculty from 1956 to 1968 – wrote in 1958 a book entitled Public Principles of Public Debt.  Before its publication, the near-unanimous opinion of scholars, pundits, and policymakers was that even very large government debt imposes only very small burdens – and burdens only of a secondary order.  Deficit financing of government spending, therefore, wasn’t much of a problem.

In less than 200 pages Buchanan vividly exposed the flawed assumptions and sloppy reasoning that produced this consensus, thus blowing it to smithereens.

While some people still cling to the “pre-Buchanan” notion of government debt being harmless, it was Jim Buchanan’s little book of 53 years ago, written in Charlottesville, that built the intellectual ground upon which today stand Mr. Peterson and other deficit hawks.

Donald J. Boudreaux (Law ’92)