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… is from page 357 of the original edition of James M. Buchanan [2]’s 1960 textbook, The Public Finances [3] (a book that isn’t included in Buchanan’s Collected Works [4]):
Taxation is imposed on individuals compulsorily, supposedly in exchange for the government’s direct provision of public service benefits from the expenditure. Borrowing, in contrast, represents a voluntary exchange through which private people give up purchasing power in exchange for the government’s promise to return to them income in future periods. Taxation, therefore, imposes a burden of payment for public services directly on the individual present during the time that the expenditure is carried out. Public borrowing, on the other hand, postpones this burden o payment until later periods. The issue of public debt shifts the cost of public expenditures to “future generations” of taxpayers.
DBx: True dat.
Of course, government borrowing shifts the burden of debt to future generations only if this borrowing is genuine – that is, from private citizens (or from other governments) who agree to sacrifice current spending power in exchange for the promise of repayment in the future. Government borrowing – or “borrowing” – shifts no burden forward if the “borrowing” is from the government’s own central bank. Through this latter fiscal operation, the government enables itself to spend new money.
But under either fiscal operation – genuine borrowing, and “borrowing” from its own central bank – the government arranges to supply real goods and services to those who benefit from the government’s expenditures. In theory, “those who benefit from the government’s expenditures” nearly always include the great majority of the people of the country. In practice, “those who benefit from the government’s expenditures” very often include only small minorities that possess disproportionate political power. Yet when funded with either genuine debt or with newly created money, the individuals who pay for these benefits are unaware that they are being taxed.
In the case of future taxpayers, many aren’t yet alive. They clearly, as the popular phrase goes, “have no voice” during the current period. In the case of current citizens under new-money creation, none has any practical way of knowing just how many and which real resources are being taken from them by the government’s expenditure of the new money.
Government borrowing as well as “borrowing,” therefore, enables the government to visibly deliver benefits to grateful recipients without either the government or the recipients being aware of who pays for these benefits – without being aware, without seeing, who is or who will be compelled to sacrifice real resources to fund these benefits.
For my entire lifetime, which now is longer than six decades, the United States government has been fiscally profligate. It’s been so during bust times and boom times. This agency gives no evidence of being fiscally responsible. It taxes its own citizens surreptitiously in order to promote the political careers of those in office. It regularly delivers benefits to clamoring interest groups, with the costs of these benefits hidden or shoved off onto unconsenting others.
So I ask: what reason is there to expect this agency to act responsibly if it is given even more power than it already has to obstruct ordinary people’s commerce? “We need our government to protect us,” seems to be the cry, in one form or another, on so many Americans’ lips these days. To which I respond with the question: Why would anyone expect this agency to act more responsibly in times of panic – when people are thinking less clearly and when their time horizons are temporarily shortened – than this agency acts during normal times?
During normal times the U.S. government devotes a great deal of effort to enable some people to live as if reality is optional. It’s unbelievable to me that during times of panic much in the way of prudence and responsibility will guide the actions of this irresponsible, profligate, and venal organization.