Deficits are bad in the sense that they represent additional
government spending beyond tax revenues that means additional goods
and services that are allocated by political processes rather that
free market choices.
The big economic picture is that people produce goods and services and
also consume goods and services. Governments (the institutions, not
the people who work in them), only allocate a portion of the goods
and services. The real "tax" governments levy on economies is not just
what is called "taxes", but what governments allocate, either by
spending or regulating.
The goods and services produced by people can either be distributed by
their own choices (in the free market) or by various government
methods. Government methods are always less efficient since they are
subject to political choices rather than individual choices. For
example, if you go to Wal-Mart, you generally walk out with exactly
what you wanted to purchase- if you didn't want it you wouldn't have
purchased it. But when a legislator, bureaucrat, or interest group
enters into a political negotiation to decide how the government will
allocate certain goods and services, they come out with at best a
negotiated settlement on the allocation.
All government activity "crowds out" free market activity that would
have occurred in the production, distribution, and consumption of
goods and services. The big picture economic loss, which can be
divided into individual economic losses, is that people end up
producing and consuming goods and services that are not wanted.
For example a huge tax preparation industry exists in the U.S. due to
the complexities of the tax code. The only reason people want to pay
someone else to do their taxes is that it's so difficult for them to
do it themselves. The smart and hardworking people of the tax
preparation industry would be much better put to use providing other
goods and services that people actually want if the tax code was
simple enough to do their own tax returns.
The government is reallocating goods and services every day. Is it
better to take those goods and services away from the people who
produced them (tax) or to borrow those goods and services from the
people who produced them (deficit spend)?
This perspective seems to make it an easier choice- would you rather
have your money (from the goods and services you produced) taken away
or would you rather lend your money? The kicker is that you may be the
one paying your own money back.
An argument can be made that the cohort of taxpayers who receive the
government allocation of goods and services should be the ones who pay
for the goods and services. This gets complicated- if the government
spends a trillion dollars on military hardware that will help defend
our country for the next 50 years, isn't it reasonable to finance it
with deficit spending so the unborn beneficiaries of that investment
will all contribute to it's purchase? On the other hand, is it
reasonable for the unborn to pay for prescription drug benefits for
today's seniors? These scenarios highlight once again the problem of
using politics to allocate goods and services.
Credit (money) is just another service that people produce for one
another. Owners of assets produce credit money by allowing others to
lend against those assets. Most widely circulated credit money is
backed by institutions (composed of people's pooled resources) rather
than individuals and this tends to obscure the source of credit money.
Some of the assets backing credit money are tangible but most of
today's credit money is backed by intangible assets like "the full
faith and credit of the U.S.A.". The creators of credit money are
continually kept in check by the massive currency market, which
instantaneously revalues currencies to keep them in line with their
underlying assets. So while the producers of credit money are free to
produce as much or as little as they want, a free market prices that
money at it's real value.
To finally answer your question- right now, people have chosen to lend
their money to the U.S. government at incredibly low interest rates-
probably lower than inflation. This means that the lenders will get
back less real value than they are lending, so it makes sense for the
U.S. to run very high deficits, as people for their own reasons
(probably security) voluntarily choose to pay this tax to hold U.S.
credit obligations.
This voluntary tax (and a lot of it is actually paid by foreigners who
prefer to hold U.S. securities) is arguably the best way to support
all government activities, but if you're interested in growing an
economy, the focus must remain on limiting government so people get to
make more of their own choices about allocating the products of their
own labor. |
