First published at The Harry Binswanger List on February 9, 2011, and is reposted here with the kind permission of the author.
Excuse me for repeating the subject header, but: deficits don’t matter. I continue to see conservatives, and some Objectivists, get sucked in to believing deficits do matter. That’s just what the government wants you to believe. It diverts attention from what does matter: how much of your wealth they are seizing.
The deficit is a theoretical figure. It’s the result gained from subtracting one number from another. But entities are prior to relationships, and numbers are prior to their relationships. What are the two existents here being related? Government spending and government tax receipts.
Government spending is the primary here. Government has no money of its own to spend. It spends only what it takes from its citizens. Thus, government spending is the looting. Tax receipts is one form of getting the loot, and only that. Whatever the government spends it has gotten from your pocket, whether by direct taxation or by any other method of getting your wealth. But is always your wealth, not “it’s own,”that the government spends.
My analogy for the deficit is this. A thief follows Joe home every payday, and regularly robs Joe of part of his income. He also has taken one of Joe’s credit cards. Each payday, the thief takes a little more of Joe’s cash and charges a little more to Joe’s credit card. Joe gets fed up with this and angrily tells the thief: “I’m not going to have you charging more on my credit card. If you want to spend more, rob me directly.”
Whether the government takes money from you directly, in the form of taxes, or charges it to your account, in the form of “deficit financing,” it still gets from you every goodie that it gives away and every dollar that it pays bureaucrats for the service of throttling you.
Focusing on the difference in the form of the taking—cash or charge—only diverts attention away from the amount of the taking.
The government now spends nearly $4 trillion. Suppose government spending were cut in half, down to $2 trillion and simultaneously all taxation was abolished. No income tax, no corporate tax, no taxes, tariffs, or fees of any kind. That would increase the deficit by about 30 percent. But it would be an almost unimaginable boon to the nation. Should we work instead for a zero deficit achieved by taxing us to the tune of $4 trillion? Yet that is what focusing on the deficit implies.
That is the sense in which deficits don’t matter. In a certain assumed state of affairs, they do matter a little. If we hold spending constant—say at $4 trillion—then there are debatable issues about which is worse in the long run: raising the $4 trillion in this way or that. But that’s moot: spending is never constant. It goes relentlessly up. It goes up under both Democrats and Republicans. And it will continue to go up until the public stops swallowing the deficit-bait and starts focusing on the real issue: the extent of the looting.
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