… is from page 134 of the late William Niskanen’s insightful Fall 2006 Cato Journal paper, “Limiting Government: The Failure of ‘Starve the Beast’,” as this paper is reprinted as chapter 15 of the 2008 collection of some of the best of Niskanen’s writings, Reflections of a Political Economist (emphasis added):
In sum, there is no significant evidence that a recent high deficit ever had an effect similar to that of reducing a child’s allowance; the difference is that the federal government has a credit card with no effective debt limit. Federal spending is better described as buying government services at a discount equal to the deficit, the costs of which will be borne by someone sometime in the future.
DBx: Resources are scarce. Therefore, to use resources X and Y to achieve goal A means that those particular resources are no longer available to be used to achieve goals B, C, …, N. To achieve goal A is costly. Is the achievement of goal A worth its cost? ‘Yes’ if the value of whatever option (among B, C, …, N) would otherwise have been produced is less than is the value of A.
When people spend their own money, they have strong incentives to use resources in ways that generate satisfactions that exceed their costs. When people spend other people’s money, they have strong incentives to use resources in ways that give the greatest possible satisfaction to the spenders, but with little or no regard to the satisfactions thereby denied to those persons whose money is spent – that is, those persons whose real resources are taken from them. When people spend other people’s money, in short, resources are used wastefully from the perspective of everyone in society other than the lucky ones who get to spend other people’s money.
Deficit financing of government spending allows people today to spend the money of people tomorrow, many of whom are literally not yet born. People today therefore spend wastefully. The amount of spending is higher than it would be absent the ability of government to borrow. Furthermore, the projects on which the borrowed funds are spent, while providing satisfaction to the spenders, cannot legitimately be supposed to provide net benefit over time to society – at least no more so than can it be supposed that the increased satisfaction that the burglar enjoys when he spends resources stolen from your home exceeds the satisfaction that you would have enjoyed had you yourself spent those resources.
Many people suppose that deficit financing is a source of free lunches, an economic perpetual-motion machine or fountain of youth. (People who fall for this fallacy typically do so because they forget about, or ignore, the fact that deficit financing results in reallocations of real resources.) In reality, deficit financing is not only not a source of free lunches, it’s a source of wasteful orgiastic feasts. It allows today’s citizens-taxpayers-politicians to gorge and intoxicate themselves at the expense of tomorrow’s citizens-taxpayers. Deficit financing is little short of a scam.
