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The Huffington Post are digging up some Neo-Chartalists and Post Keynesians to defend the national debt...

It's being discussed over at the LvMI blog. I have lost several brain cells talking to Post-Keynesians...

Well, just for the record, there have been two major moves to reduce the US budget deficit. One was under George H.W. Bush, the other under Bill Clinton. Both involved combinations of spending cuts/restraints with tax increases. It may be trivially boring to point out that the outcome of these two efforts by the end of the last century was a budget surplus.

Define things as you want, Pete, but the hard political reality is that the actually historically successful efforts to reduce deficits have involved both sides of the budget picture, not just one.

While Barkley might be historically right looking over the last, say, twenty years, it does not change the fact that the real problem is with the expenditure side.

It is the pervasive philosophy and ideology of the redistributive state -- of all and sundry types -- that has generated the debt problem.

The classical liberal perspective is that anywhere between 80 to 90 percent (I'm trying to be non-dogmatic here) of what the Fedral government spends money on, it should not be involved with in the first place.

Indeed, if the range of government were to be shifted back well into the direction of what the traditional classical liberal considers to be the general functions and "responsibilities" of the national government, not only would expenditures be dramatically cut, but taxes could be significantly reduced, as well.

Richard Ebeling

Yes to Richard. I fear Barkley is guilty of post hoc, ergo properter hoc.

In these discussions, it is useful to recall that expenditures are the tax on the private sector: they measure the extraction of resources from the economy. "Taxes" are one of three methods of financing expenditures. The idea of "balancing" cuts between expenditures and taxes is a conceptual confusion. Raising taxes is a tradeoff against borrowing or inflating, not against spending (the economic tax).

The details:

Reagan's entire policy of disinflation, deregulation and cutting marginal tax rates reoriented the US economy to higher growth rates. Clinton maintained sound policies, altering the mix a little, and prosperity continued.

In between, Bush 41 made one important, positive contribution. He bit the bullet and wound up the S&L crisis. To his discredit, Reagan punted on that. Under Clinton, Rubin and Summers ignored the emerging problem of asset bubbles. The Fed's response to the collapse of LTCM in 1998 was wrong and created the "Greenspan Put."

Then we had the dotcom bubble and collapse, and the Fed then inflated the housing bubble in response. Boom and bust makes for overstated economic growth rates, and an illusory tax base. And expenditures balloon faster than taxes.

In Misesean terms, we have exchausted the surplus. Human and nonhuman capital is poised to move elsewhere as we debate how to put out the fiscal fire. Hundreds of American living overseas turn in their US passports every year.

The question is *where* to move too. European countries are not in a better position.

Good point for the present.

Singapore is becoming an international destination for physical and human capital. Jimmy Rodgers, Soros' original partner, decamped there. Within Europe, Switzerland is still a nice place to live and work.

It's really quite simple. The only way to get the deficit under control, short of eliminating the government completely, is to amend the constitution in such a manner that forbids the government from issuing treasury debt. Last February saw approximately $240 Billion dollars of new treasury debt issued. The other option is one that forbids the government from spending one single dollar that it does not tax directly.(guess how long that would last until the next revolution!)

We could also eliminate the entire DoD, all social welfare programs, the department of education, and then we might be able to pay of the debt. See how many harvard lawyers who are senators and congressman you will get to agree to these actions. Simply put...our government is bankrupt, doomed to collapse, and there is going to be an enormous and painful wrenching change in the future. Unfortunately, sooner is better than later.

To add one more comment to my first post. The inevitable collapse of our bankrupt government is no conspiracy theory. Look at history. Just look at history! Governments throughout history grow and grow and grow until they collapse. Governments that accumulate this kind of debt never survive. Never. It's amazing to think that the government which was supposed to be the smallest and most limited government in history has grown to the largest and most powerful government in history. For those of you who disagree with my assessment of inevitable collapse... I challenge you to show me one government, and one fiat currency that has existed since the beginning of mankind and hasn't collapsed.

The biggest miss was probably not focusing on the "emergency spending" phenonemon. Once you allow Congress to designate spending as emergency, it's off to the races. The thing's got to be airtight, to refocus the bureaucrats on fighting each other over a limited pot, rather than ganging up on the taxpayer.

If we were actually invaded by China, or California fell off, it'd take <24 hours to actually repeal even a balanced budget amendment, IMO.

To David Connelly's account, I would add the problem of unfunded liabilities. No debt is issued, just an obligation incurred.

At Cato@liberty, David Boaz posted a chart showing explicit and implict US Treasury debt compared to other countries. We're right there with France and approaching Greek levels.

Some time ago I read a paper (by Garrison? Not sure) in which he said that the Clinton's budget balancement was achieved in part by some mysterious (to me) accounting trick, such as shifting to the future present expenses. I found no other reference to this policy elsewhere. What was it about?


Yes, that's right, the same trick was used in Britain. Some state sector pensions are not included in the figures. Once they are included the debt rises considerably.


And for how the same trick was worked in Britain:

I like the idea of private provision of public goods competing with government provisions to tease out the truly public goods. However, the weakness is in the crowding out of demand for private services.

I also liked Mala lex's comment on emergency spending.

Also, the absence of constitutional delegations of federal reserve powers is simply ignored. Why would balanced budget or tax limits be any different?

I'm reading this paper by William Buiter and I'm quite convinced that our future is bleak. The fiction by which everybody thinks to be living at other people's expenses won't last forever. Governments are only capable of producing dysfunctional markets and unfundable paper social rights.

Current: thanks for the pointer.

Incidentally, has anyone written a comprehensive fisking of Neo Chartalist theory?

I've being arguing with them over at the LvMI blog. I've searched the web for such a fisking but without luck.

I still have to pinch myself to realize I am not living a dream. And last weekend just made me realize once again how fortunate I am.

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