Back in 2019, I listed “Six Principles to Guide Policy on Government Spending.”
If I was required to put it all in one sentence (sort of), here’s the most important thing to understand about fiscal policy.
This does not mean, by the way, that we should be anarcho-capitalists and oppose all government spending.
But it does mean that all government spending imposes a burden on the economy and that politicians should only spend money to finance “public goods” that generate offsetting benefits.
Assuming, of course, that the goal is greater prosperity.
I’m motivated to address this topic because Philip Klein wrote a column for National Review about Biden’s new spending. He points out that this new spending is bad, regardless of whether it is debt-financed or tax-financed.
As Democrats race toward squandering another $4.1 trillion — perhaps with some Republican help — we are being told over and over how the biggest stumbling block is figuring out how the new spending will be “paid for.” …Senator Joe Manchin (D., W.Va.), who is trying to maintain his image as a moderate, insisted that he doesn’t believe the spending should be passed if it isn’t fully financed.
“Everything should be paid for,” Manchin has told reporters. …Republican members of the bipartisan group have also made similar comments. …But it is folly to consider massive amounts of new spending to be “responsible” as long as members of Congress come up with enough taxes to raise… At some point in the next few weeks, Democrats (and possibly Republicans) will announce that they have reached a deal on some sort of major spending compromise. They will claim that it is fully paid for, and assert that it is fiscally responsible. But there is nothing responsible about adding trillions in new obligations at a time when the nation is already heading for fiscal catastrophe.
Klein is correct.
Biden’s spending binge will be just as damaging to prosperity if it is financed with taxes rather than financed by debt.
The key thing to realize is that we’ll have less growth if more of the economy’s output is consumed by government spending.
Giving politicians and bureaucrats more control over the allocation of resources is a very bad idea (as even the World Bank, OECD, and IMF have admitted).
[…] intents and purposes, they want us to believe that there’s no downside if you combine anti-growth spending increases with anti-growth tax increases – so long as there’s no increase in red […]
[…] and purposes, they want us to believe that there’s no downside if you combine anti-growth spending increases with anti-growth tax increases – so long as there’s no increase in red […]
[…] With regards to fiscal policy, part of my mission is to proselytize in favor of lower tax rates and a smaller burden of government spending. […]
[…] With regards to fiscal policy, part of my mission is to proselytize in favor of lower tax rates and a smaller burden of government spending. […]
[…] friends on the left who want more government spendinggenerally have a short-run argument and a long-run […]
[…] friends on the left who want more government spending generally have a short-run argument and a long-run […]
If you want to control spending, financing through taxes seems a good tactic.
That is obviously not working. Vote buying is the problem. The promise of government money motivates to many people, to stupid to understand that small stipend the government gives them will cost them hundreds of times over in inflation in the long run. Most voters are ignorant.
The economy can’t be stimulated through spending because the money has to come from somewhere.
If the government raises taxes, it is, in effect, taking money out of the economy to put it back into the economy. This would be like taking $20 out of your left pocket and moving it to your right pocket and acting like you are somehow better off for the exchange. This would be at best a net zero stimulus, but it ends up being a negative stimulus because the goevernment spends money inefficiently.
If the government prints more money, it is in effect a hidden tax, because it devalues all the money that was in circulation before the monetary expansion.
If the government borrows money, it is a net negative, because it must pay the money back with interest.
[…] Government Spending Is a Problem, Regardless of How It Is Financed […]
Reblogged this on Gds44's Blog.
To quote Peter, Paul and Mary: “Oh, When will we ever learn?”
I agree with the primary assertion: how much we spend matters more than how we finance it.
Practically speaking though, financing through taxes makes the spending burden much more overt than the other two. If you want to control spending, financing through taxes seems a good tactic.