John Tamny generously, warmly, and intelligently responded to my earlier letter inviting him to join the ranks of government-budget-deficit hawks. Here’s my reply to John’s response:
Thanks for your thoughtful and generous reply to my earlier letter.
The hypothetical choice offered in your article is indeed helpful; it’s this: “Which is preferable to you: $50 trillion in federal spending over the next ten years with none of it borrowed, or $25 trillion in spending over the next 10 years, half of it borrowed? I think the answer is pretty clear. Spending is the problem, not how they get it.”
As an economist I agree that $25 trillion spent by government with half borrowed is preferable to $50 trillion spent by government with none borrowed. But your hypothetical misses the crucial consideration that the amount that government spends is not independent of its ability to borrow. The greater is government’s ability to borrow, the higher will be its spending. (Conveying this reality was a key point of my earlier letter – or, rather, such was my intention even if, as is likely, I failed to carry out my intention very well.) Treating the amount spent as exogenous to fiscal institutions seems to me to be inappropriate.
As I suggested in my earlier letter, my key economic reason for being a deficit hawk is that I believe that reducing government’s ability to fund spending with debt reduces government’s ability to spend – and, hence, reduces its need to tax – over time.
But now let me write not as an economist but as someone looking only at the ethics of the matter. On ethical grounds, I do not agree that lesser spending funded in part with debt is superior to higher spending funded fully with current taxation. The reason is that today’s spending is paid for by future citizen-taxpayers. Explaining why this fact is so – that is, explaining why the burden of today’s deficit spending does not fall on today’s citizens-taxpayers – is the point of Jim Buchanan’s 1958 book, Public Principles of Public Debt.
I believe it to be ethically wrong for today’s citizens to consume at the expense of people who aren’t yet part of the political decision-making process, no matter the amount of this consumption. As imperfect as the political decision-making process is, today’s citizens do have some influence over today’s government decisions. Tomorrow’s citizens have none. It is unethical for today’s citizens-taxpayers to use government to acquire goods and services paid for by individuals who have no say in fiscal choices.
In summary, not only is deficit financing economically destructive, it is ethically troublesome.