The Damage Done by Deficit Financing

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The Treasury Building in Washington, D.C., August 5, 2021 (Brent Buterbaugh/National Review)

The federal government racks up tremendous amounts of debt every year and the pace has been accelerating. But is this anything to worry about? Statist intellectuals scoff at the idea. We owe the money to ourselves, and besides, deficit spending stimulates the economy. So chill.

Not all intellectuals, though. One who doesn’t is GMU economics professor Don Boudreaux. In this AIER essay, he explains why government deficits are damaging, to future taxpayers, but also to people in the present.

Here is his conclusion: “Deficit financing — by enabling people today to free-ride on people tomorrow — allows government to expand its size and reach beyond that which would be obtained if government were required to fund all of its current expenses out of current revenues, with no opportunity for deficit financing. In short, deficit financing paves a path for the unwarranted and wasteful expansion of government activity. Only someone who is convinced that government will undertake only economically worthwhile projects regardless of the means of financing — or someone who doesn’t understand economics — can look favorably upon deficit financing by government.”

Indeed so. The more resources the government extracts from society for the purposes favored by politicians, the less is left for the purposes of people in the private sector, where, owing to the profit and loss test, they tend to be used efficiently.

Read Boudreaux’s entire essay.

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