Are We Mortgaging Our Children’s Future?

Or, what will the “stimulus package” stimulate?

Congressional Democrats used to depict George W. Bush’s tax-rate reductions as fiscally irresponsible. The real problem, for Democrats, wasn’t that tax cuts might cause the national debt to swell. The real problem, for Democrats, was the prospect of having less money to spend on things that Democrats like to spend money on.

Now that Democrats control the White House and both houses of Congress, fiscal irresponsibility is all the rage (among Democrats). It seems that an increase in the national debt isn’t fiscally irresponsible if (a) it results from Democrat policies and (b) it’s caused not by lower taxes but by huge government spending programs.

Predictably, some Republicans have reverted to the old GOP line that deficit spending mortgages our children’s future (or some such thing).  The flaws in this assertion are exposed very nicely here, by professional economists.

However, the suggestion that the national debt represents inter-generational theft does hint at an essential truth. The burgeoning size and influence of government (which is the cause of the burgeoning national debt) amounts to theft — period:

1. Government spending (whether financed by taxes, borrowing, or money creation) commandeers resources that could have been used to produce goods and services in the private sector. Government spending diverts those resources to uses deemed “beneficial” not by producers and consumers but by politicians and interest groups.

2. Some of the commandeered resources are devoted to the payment of government employees for the purpose of making work for them, which includes the  writing and enforcement of regulations that hinder economic growth. Other resources are commandeered for the purpose of transferring purchasing power from productive members of society to less-productive and unproductive ones, thus penalizing and discouraging the traits that drive economic growth: hard work, thrift, innovation, and entrepreneurship.

3. The net effect  — near-term and long-run — is to reduce total economic output below what it could have been.

In other words, the “stimulus package” doesn’t simply “mortgage our children’s future.”  It does a lot more than that. Like all government spending that isn’t undertaken for the protection of Americans from foreign and domestic predators, the “stimulus package” mortgages our present, our future, our children’s future, and their children’s future, ad infinitum. The real problem isn’t the size of the national debt, it’s the size of government.

The best way to stimulate the economy is to reduce the tax and regulatory burdens that stifle hard work, thrift, innovation, and entrepreneurship — words that don’t seem to be in Democrats’ vocabulary. On the contrary, Democrats (Barack Obama, in particular) are bent on increasing the tax and regulatory burdens on Americans, especially those upon whom growth most depends.

As Friedrich Hayek explains, in The Constitution of Liberty,

the illusion that by means of progressive taxation the burden can be shifted substantially onto the shoulders of the wealthy has been the chief reason why taxation has increased as fast as it has done and that, under the influence of this illusion, the masses have come to accept a much heavier load than they would have done otherwise. The only major result of the policy has been the severe limitation of the incomes that could be earned by the most successful and thereby gratification of the envy of the less-well-off.

The answer to the question asked at the beginning of this post: The “stimulus package” (and other Obama initiatives) will stimulate a massive growth in the size and intrusiveness of government. Greg Mankiw agrees (here and here, for example).

Further reading:
Curing Debt Hysteria in One Easy Lesson
The Real Meaning of the National Debt
Debt Hysteria, Revisited
Why Government Spending Is Inherently Inflationary
Joe Stiglitz, Ig-Nobelist
A Simple Fallacy
Ten Commandments of Economics
Professor Buchanan Makes a Slight Mistake
More Commandments of Economics
Productivity Growth and Tax Cuts
Risk and Regulation
Liberty, General Welfare, and the State
Do Future Generations Pay for Deficits?
The Laffer Curve, “Fiscal Responsibility,” and Economic Growth
And much more, here.