3 Lies They Tell Us About Budget Deficits

RealClearMarkets ^ | 01/05/2012 | John Tamny

[SeekAndFind]

Thanks to an explosion of Keynesian deficit spending around the world, an explosion that has predictably correlated with weak economic output, major ink is being spilled about the economic crack-up unfolding before our eyes. To state the obvious, wasteful, capital destroying governments can only spend what they first extract from the private sector.

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The first lie we're regularly told about budget deficits. Supposedly the latter are bad, but looked at through a basic economic prism, would we prefer a balanced budget in the U.S. that coincides with $3 trillion in annual spending, or an annual budget deficit of $500 billion occurring in concert with spending of $1 trillion? Economic logic says we'd much prefer deficit spending that coincides with much lower spending in total. Once again, governments destroy capital, while private actors seek to expand it. Governments that spend less necessarily leave more capital in the hands of the productive, so for commentators to bemoan deficits while ignoring the bigger problem of spending is for them to engage in an act of willful blindness.

Another lie we're told by the well-meaning in our midst is that "we can't afford it." We can't afford troops around the world and the various military adventures that heavily deployed troops lead to, we can't afford more entitlement spending, and we can't afford government subsidization of home ownership.

While the above is partially true, the reason it's not is rarely articulated. We can't afford a global troop presence because it's a waste of human and financial capital that could otherwise be deployed in more productive areas. War is tautologically a wealth destroyer, and worst of all it's a human capital destroyer, so that's why we can't afford it. Entitlement spending works against the very saving that authors our economic advancement, plus it's a work disincentive that similarly retards our advancement. Home ownership subsidies cruelly lock individuals into a location at a time when financial capital moves at the speed of a mouse click. We can't afford housing subsidies because they make us immobile at a time when the capital that funds the creation of companies and jobs is highly mobile.

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All of which brings us to the most popular lie about budget deficits at the moment, which says that the deficit troubles of governments mostly in Europe threaten the global economy. What a laugh, and to understand why it is, we must ask ourselves why it's a problem when governments can no longer attract investors to fund their ongoing capital destruction.

If so, we'll then see that far from an economic problem, something quite beautiful is occurring before our eyes. Investors are presently telling various European nations "you can't afford it," and if left alone, this market-driven reality will ensure smaller governments forced to get by on less. Looked at in terms of the proverbial shoemaker bereft of funds to purchase equipment necessary for more output, governments being put on smaller allowances signals a greater amount of capital to be accessed by those eager to be productive.

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[1010RD]

a waste of human and financial capital that could otherwise be deployed in more productive areas

Nice summary of socialism.

[Opinionated Blowhard]

The biggest lie is to focus on the deficit as the problem. The “Deficit” isn’t the problem. Spending is. Spending is completely out of control. It goes up and up and up. Taxes are at or a bit higher than their historical average. They are tilted heavily toward the top 10% of people in terms of income. And yet the Welfare State has a ravenous appetite for more and more money. No one wants to admit this or those who do aren’t doing a good enough job.

[citizen]

Interesting about the author’s contention that housing subsidies are counterproductive. I agree to some extent. We have all read the stories of people needing to move to another area for work but they are tied to their house and either must remain living in it or they make the decision to maintain two residences, if they have the means. Otoh, if one is fortunate enough have an entrenched job/profession in a fixed location, then buying and owning a home is typically the best use of family resources.

[kabar]

We can't afford a global troop presence because it's a waste of human and financial capital that could otherwise be deployed in more productive areas.

It is guns versus butter re government spending. The Dems want to use any money saved from reduced defense spending to keep the unsustainable welfare state from collapsing--at least for a little while longer.

Last time I read the Constitution, defense and national security are primary responsibilities of government.