The last time my neighbor and I talked, he said that, historically, chronic government borrowing always resulted in national insolvency or runaway inflation. “Insolvency,” of course, is not having enough money to pay off existing debt. But, if you never have to pay off the debt, how can you ever become insolvent? This is very confusing. Inflation, the “silent thief,” destroys purchasing power. Prices go up, real income doesn’t. It takes more money to buy the same things today than it did yesterday. Anyone living on fixed income, retired people, for example, are hit with most of the impact and suffer severe financial dislocations. Said I, to my friend, “Can you please explain things to me, simply?”
My neighbor replied, “Here it is, as simple as it gets: either immediately or ultimately, every dollar government spends has to be obtained through a dollar of taxation. Inflation is a particularly vicious form of taxation. Once we understand this, the supposed miracles of government spending appear in a different light.”
“But,” I said, “there has to be some government spending. Certain things are necessary. Think of all the jobs public works create and all the money they bring into the community, too.”
“Of course, a certain amount of government spending is necessary. Streets, roads, bridges, tunnels, buildings to house legislatures, police and fire departments. I have no objection to public works as long as they are defended only on the basis that they provide necessary government services. That is, if a bridge solves a traffic or transportation problem that can’t be solved otherwise, or if a bridge is even more necessary than other things taxpayers would have spent their money on, if it had not been taxed away from them. Where there is a problem is when economists say public works ‘provide jobs’ or ‘add wealth to the community’ that it would not otherwise have had.”
“You’re telling me,” I responded, “certain public works are necessary, but building them can be defended only on the ground of necessity. At the same time, they don’t provide jobs or add wealth to the community, even when somebody has to put in the work to build them. Yet, those projects mean jobs and jobs mean paydays for the workers. Paydays for the workers mean money coming into the community, doesn’t it?
“But,” said my neighbor, “if a bridge is built primarily ‘to provide jobs,’ the need to build has become irrelevant. To keep the ‘provide jobs’ process going, government spenders have to invent projects. Instead of thinking about where a bridge ought to be built, they think of plausible reasons why a bridge can be built. Their projects soon become categorized as ‘absolutely necessary.’ What’s more, anybody who questions that necessity is labeled an obstructionist and reactionary.”
“Sheesh,”, said I, “But, bridges are being built for that reason. There have to be good arguments to justify the spending. Finding more places to build more bridges is pretty good job security for government spenders. But, what arguments do they offer in favor of spending to build a bridge ‘to provide jobs?’”
“That question has two answers, Draco,” said my neighbor.
My neighbor replied, “Here it is, as simple as it gets: either immediately or ultimately, every dollar government spends has to be obtained through a dollar of taxation. Inflation is a particularly vicious form of taxation. Once we understand this, the supposed miracles of government spending appear in a different light.”
“But,” I said, “there has to be some government spending. Certain things are necessary. Think of all the jobs public works create and all the money they bring into the community, too.”
“Of course, a certain amount of government spending is necessary. Streets, roads, bridges, tunnels, buildings to house legislatures, police and fire departments. I have no objection to public works as long as they are defended only on the basis that they provide necessary government services. That is, if a bridge solves a traffic or transportation problem that can’t be solved otherwise, or if a bridge is even more necessary than other things taxpayers would have spent their money on, if it had not been taxed away from them. Where there is a problem is when economists say public works ‘provide jobs’ or ‘add wealth to the community’ that it would not otherwise have had.”
“You’re telling me,” I responded, “certain public works are necessary, but building them can be defended only on the ground of necessity. At the same time, they don’t provide jobs or add wealth to the community, even when somebody has to put in the work to build them. Yet, those projects mean jobs and jobs mean paydays for the workers. Paydays for the workers mean money coming into the community, doesn’t it?
“But,” said my neighbor, “if a bridge is built primarily ‘to provide jobs,’ the need to build has become irrelevant. To keep the ‘provide jobs’ process going, government spenders have to invent projects. Instead of thinking about where a bridge ought to be built, they think of plausible reasons why a bridge can be built. Their projects soon become categorized as ‘absolutely necessary.’ What’s more, anybody who questions that necessity is labeled an obstructionist and reactionary.”
“Sheesh,”, said I, “But, bridges are being built for that reason. There have to be good arguments to justify the spending. Finding more places to build more bridges is pretty good job security for government spenders. But, what arguments do they offer in favor of spending to build a bridge ‘to provide jobs?’”
“That question has two answers, Draco,” said my neighbor.
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