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Bonus Quotation of the Day…

… is from page 45 of Jim Buchanan’s sadly ignored, but highly important, Public Principles of Public Debt:

The basic point to be made in all this is simply that the reduction in the net worth involved in making the tax payments must be offset against the productivity of the public project which is financed with the debt. It is improper and misleading to offset this reduction in net worth against the increase in net worth enjoyed by the bondholders. The latter increase must take place regardless of the productivity of the public investment.

This quotation is relevant because it shows clearly that Jim Buchanan’s case does not depend upon future taxpayers not receiving value from today’s debt-financed expenditures.

Today’s debt-financed expenditures might be on all reckonings fabulous for everyone on the globe, today and into the future, including being an exceptionally fine deal for tomorrow’s taxpayers who foot the bill. But there is still a bill. And the fact that the bondholders’ whose wealth rises as a result of this fiscal action – a fiscal action finalized when the taxpayers successfully pay off the bonds on the terms voluntarily agreed to by the bondholders and the issuing government – might be citizens of the same country as the taxpayers is utterly irrelevant. The bondholders’ gains do not cancel the taxpayers’ costs. (The bondholders, remember, had alternative uses of their funds. They could have loaned them to some other government, to private borrowers, or used these funds in a multitude of other ways.)