Ignore Deficit-Doves’ Cooing

by Don Boudreaux on June 15, 2020

in Budget Issues, Debt and Deficits, Seen and Unseen

In my latest column for AIER I explain why I believe that opponents of big and intrusive government should be deficit hawks and not deficit doves. A slice:

To say that citizens avoid an increase in taxes whenever a government program is paid for with borrowed money rather than with taxes today makes no more sense than to say that you avoid an increased obligation to pay if you buy a car with borrowed money rather than with your income today. Clearly, when you buy a car with borrowed money you incur an increased obligation to pay. The fact that you’ve delayed the timing of your payment does not mean that you don’t pay for your car. The fact that you are not paying for your car today does not mean that your car is paid for, not by you, but by the bank from which you got a car loan. You pay for your car out of your income tomorrow.

Anti-taxer deficit doves respond by arguing that, unlike private debt that eventually must be retired with repayment, government debt never has to be retired. According to anti-taxers, government can merely borrow again to repay each debt as it comes due. And so (the argument proceeds) government programs paid for yesterday with voluntarily loaned funds are not paid for today by taxpayers; these programs are paid for today with today’s voluntarily loaned funds.

Of course government can, and often does, roll over its debt – that is, government can and often does repay debt coming due today with funds newly borrowed. But government debt can be rolled over because creditors correctly understand that government has the power to tax. Just as a bank gives you a car loan because it understands that you have the power to earn income and, thus, the ability to repay your debt, creditors buy government bonds only because they understand that government has the power to tax and, thus, the ability to repay its debts.


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