As part of my annual “Hopes and Fears” column, a rejuvenated interest in spending restraint was at the top of my list.
This clip from a recent interview summarizes the economic issues.
If you don’t want to watch the video, here are the three things to understand.
- Tax-financed spending is bad for prosperity.
- Debt-financed spending is bad for prosperity.
- Monetary-financed spending is bad for prosperity.
And if you understand those three things, then you realize that the real problem is spending.
At the risk of over-simplifying, taxes, borrowing, and printing money should be viewed as different ways of doing a bad thing.
Since I mentioned over-simplifying, I’ll close with a couple of observations that are somewhat contradictory.
- First, I don’t worry very much about whether there is a surplus or a deficit in any particular year, but it is a good idea to have long-run fiscal balance (compared to the alternatives of financing the budget with borrowing or printing money).
- Second, while taxes are the most appropriate way to finance spending, tax increases are a reckless and irresponsible option because we have so much evidence that politicians will respond with additional spending and additional debt.
Which brings us back to the main lesson, which is that spending is the problem and spending restraint is the solution.
Not just a solution. The only solution.
P.S. This video is a bit dated, but all of the economic analysis is still completely accurate.
