Thursday, January 10, 2013

Boudreaux Changes the Question on Public Debt Burdens

Here. As most of you know, this of course ties back to Buchanan too.

Bridges can only be built at a cost and they provide a benefit.

If we pay for bridges with taxes, the taxpayers (whoever they are) pay the cost and citizens enjoy the benefit. Assuming the benefits and the costs match up exactly, society as a whole is no poorer. Hopefully, the benefits exceed the costs!

If we pay for bridges with debt, taxpayers in the future (whoever they are) pay the cost and citizens enjoy the benefit. Assuming the benefits and the costs match up exactly, society as a whole is no poorer. Hopefully the benefits exceed the costs here as well!

There is nothing about public debt that makes us poorer than taxation would have made us.

Public debt does shift which taxpayers bear the cost. Then again, you don't need debt to do that. You can do that in the tax code too. But centuries of experience shows debt markets are a particularly efficient way of raising these funds in a pinch.

The fallacy that Lerner, Baker, Krugman, and those other crazy lefties point out is that you certainly can't say that future national income is threatened simply because we have to "pay back the debt". Why? Because it's just a transfer from a taxpayer to a creditor.

So it is right to say "debt helps us shift the costs through time - presumably to align benefits and costs intertemporally, if we're wise"

It is also right to say "So long as the benefits of an expenditure equal the cost there is no reason why funding something with debt will impose any kind of special burden. We owe it to ourselves. It simply shifts around when this will all show up in the accounting".

Don Boudreaux asks his correspondent to demonstate that deficit financing cancels out the cost associated with public expenditures.

But why would anyone ever think it could do a thing like that?

11 comments:

  1. Seriously people. Think about this.

    If anyone actually thought what Don is claiming they think, wouldn't they be advocating that the government borrow the entire gross domestic product every single year?

    It makes no sense. It's a particularly transparent strawman.

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  2. Now, I'm only an accountant not an economist, but...

    If you want to match costs with benefits (as in, those who will benefit the most bear the most cost) doesn't it make more sense to pay for items such as a bridge with debt financing, since the benefit from the bridge will most likely last much longer than the instant in which you would use taxpayer funds to pay for it?

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    1. I would tend to agree.

      This is why you usually see strictly consumption programs - like Social Security and Medicare - funded by dedicated taxes with an actuary to work it all out. I think it would be inappropriate to put those in the general budget and deficit finance them (Mr. Roosevelt and Mr. Johnson apparently agreed with me on that).

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    2. I could have sworn that it was put on the general budget during Johnson's tenure,and that it was then taken off again under Reagan's tenure. I could be wrong, but that is my memory.

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    3. The whole Trust Fund slight of hand, whereby all revenues exceeding outflows are immediately spent, with a non-negotiable security put in its place, was however written into the original SSA.

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  3. "If we pay for bridges with taxes, the taxpayers (whoever they are) pay the cost and citizens enjoy the benefit. Assuming the benefits and the costs match up exactly, society as a whole is no poorer."

    "No poorer" is really your standard? That's absurd man! Economics is about maximization...optimization...getting the most bang for your buck.

    What would give taxpayers the most bang for their buck...a bridge or a new stadium? You can't DIVINE the answer. But, just like the good Keynesian you are, you think you can...but you really can't.

    The only way we would be able to figure out what would provide the greatest "profit" for taxpayers would be to allow them to choose whether they spend their taxes on the bridge or the stadium.

    Like I said in my last comment, opportunity cost isn't you, the government planner, inspecting tea castings and chicken entrails, in order to divine what my true preferences are...it's me, not being happy with either of those two options and having the freedom to give my taxes to my local school instead.

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    1. I think you are missing the point and missing multiple occasions were I indicated that that is not the standard or the expectation at all.

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    2. I'm missing the point? Given that you don't understand that people's preferences matter...you've consistently missed the point of Boudreaux, Buchanan and Bastiat.

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  4. Wow. It's like seeing a magician palm a card. The claim was financing the bridge via debt is no more a burden than financing it via taxes. Not that the bridge is free, but about the costs of choosing how to finance it. And it magically becomes how does that "make it legitimate to say that the bridge cost Americans as a group nothing to build?" No-one is saying that!

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  5. The fallacy that Lerner, Baker, Krugman, and those other crazy lefties point out is that you certainly can't say that future national income is threatened...

    Right, and then they also use this claim interchangeably with the claim that "future generations are threatened." I am not going to say anything more. If you guys don't see how the public is not getting this point, and are very misled by the "no net burden" analysis when it's couched in terms of GDP, then I will never get you to see it.

    Perhaps if I one day become wealthy, I will sponsor a survey of 1,000 Americans, and I'll have you and Ken B. sign off beforehand on the questions. We'll state some things from Krugman and Dean Baker, tell the reader to assume they're true statements, and then ask questions about what they think it means. I am quite sure at least 85% would think the OLG type outcomes are impossible.

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  6. BTW I understand your objection to this particular Boudreaux post. But I'm saying you have your own sleight of hand when you use "future national income is unchanged" to be equivalent to "future generations aren't burdened on net."

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