Some congressman quoted on SRN news this morning saying that “Society is going to have to take responsibility for the national debt.”

Why doesn’t Congress take responsibility? Since they’re the ones who did it.  I guess “society” pseudo-did-it but deficits have been a long-standing tradition of both the left and right parties in all modern states.

Here’s an excerpt from economic historian Gary North:

If you think about this, the positions (Keynes and Austrians) can both be used to justify federal deficits in the short run. The federal deficit exists because tax revenues do not cover expenditures. Austrians favor lower taxes, no matter what. So, Austrians are concerned with the deficit because spending cuts do not match — or, better yet, exceed — tax cuts. The government continues to expand its operations. The goal of Austrians is to shrink the state. This means spending cuts.

The assumption of the Austrians is as follows. The government is not ready — will never be ready — to cut spending prior to a crisis that forces them to cut spending. They recognize that only a financial crisis will stop the government from spending. So, in the meantime, it is best to take whatever tax cuts we can get. This increases the deficit. But, the Austrian says, there are two ways to have a deficit:

with higher taxes, or
with lower taxes.
Congress is going to spend. Which way is better for liberty? Austrians generally conclude: the lower tax / high deficit way.

But doesn’t this mean there will eventually be a Great Default? Yes, it does. But there is going to be a Great Default in either case: high tax or lower tax. So, let us keep more of our after-tax money today and prepare for that default. Congress is going to spend every dime that comes in, and then borrow against future revenues. Nothing will change this, short of a financial crisis when lenders will no longer lend at low rates. Call this the “Greek event.”

Keynesians applaud the deficit for a different reason. They see increased government expenditures as an enormous advantage for the economy. Federal borrowing enables the government to increase expenditures in the short run without tax hikes. There is therefore no tax revolt by voters. The government can therefore spend more as a result.

Austrians want less government spending. Keynesians want more government spending. Both sides accept a rising deficit. Keynesians think the deficit gives consumers a chance to increase spending, even if this means taking on more personal debt. They also think there will never have to be a Great Default. They trust deficits and central bank inflation to defer the Great Default forever.

Austrians think the deficit gives future-oriented people time to prepare for the Great Default, which is inevitable in a world dominated by Keynesian economics.

 

The natural progress of things is for liberty to yield and government to gain ground. -Thomas Jefferson

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