Spending other people's money
Politicians like promising voters goodies that allegedly are paid for by others -- preferably by others whose wealth voters feel is undeserved (such as the "1 percent"). Even better for politicians, though, is promising voters goodies that cost nothing!
Who doesn't want goodies that are free?
The problem, of course, is that almost nothing worthwhile is truly free.
So how can politicians promise free goodies• Economists influenced by John Maynard Keynes often write as if they've uncorked the secret: government borrowing from fellow citizens.
Here's their argument: If Uncle Sam borrows to pay for, say, an extra $1 trillion of stimulus spending, this spending is free to the country as a whole if the debt is owed only to Americans. True, Uncle Sam must raise taxes tomorrow to pay this debt, but the debt payments will be made to Americans. Americans will be taxed an extra $1 trillion plus interest, but every cent of these higher tax collections from Americans will be paid to Americans. The money stays here. America, as a whole, pays nothing for today's stimulus spending!
In econ-speak, internally held debt is no burden on the economy.
At first glance, this argument appears sound. But look again.
Suppose the stimulus funds are spent to build roads. We might all agree that the roads are worth every cent spent to build them. But just because something is worthwhile doesn't mean it's costless.
Real resources are used up in building the roads. The millions of hours of labor, fuel to power the construction equipment, concrete, asphalt, steel and other building materials, the land that is now paved over with highways and boulevards -- all are resources that could have been used to produce other things of value. The satisfaction that people would have gotten from those things that instead could have been produced -- but in fact aren't produced -- are the cost of building these roads.
Those foregone goods and services don't become "unforegone" simply because Uncle Sam borrows the funds used to build the roads from Americans.
My George Mason University colleague James Buchanan won the 1986 Nobel Prize in economics in part for his work explaining why it's mistaken to conclude that internally held debt imposes no (or only minuscule) burdens on the economy.
Buchanan reasoned that the burden of the debt isn't borne by the lenders: They lend voluntarily in hopes of receiving an attractive return. Had they not loaned to the government, they would have used their money in other ways, likely as loans to private investors.
Nor is the burden of the debt borne by today's taxpayers. It's precisely to avoid raising taxes today -- to avoid burdening today's taxpayers -- that government borrows.
The burden of the debt falls just where common sense tells us it falls: on the people whose taxes are raised to pay it. Those people are taxpayers in the future. And again, that the bondholders are also Americans does nothing to "unforego" the goods and services sacrificed to build the roads.
Of course, if today's taxpayers save and pass on enough money to their kids so that their kids can use these savings to pay off the debt, then today's generation would relieve tomorrow's generation of the debt's burden. But today's generation is unlikely to be so kind. Again, government debt is incurred today for the very purpose of enabling today's taxpayers to "free-ride" on future taxpayers.
And such "free-riding" means that government today will likely overspend.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pirates notebook: Cole scratched from rehab start at Indianapolis
- Police: Body found beneath Tarentum Bridge is jumper
- Fired-up McNamara races to victory in Liberty Mile
- Steelers notebook: Team extends Suisham’s contract through 2018
- Locke’s difficulties continue thanks to old friends
- Churches putting faith in social media
- City of Asylum app shines light on North Side
- Pitt suspends cornerback Howard
- Steelers rookie says Sam, his former roommate, has changed
- White House redacts CIA torture report
- Driver describes fireworks-spooked horse that struck SUV near fairgrounds