January 17, 2004

Deficits Do Matter

Contrary to the opinions we've heard expressed more than a few times lately from the White House, deficits do matter. No, they don't matter to the exclusion of all else as those whining about the loss of revenue due to tax cuts, or complaining about the expense of instituting democracy in Iraq, or bemoaning the cost of an ambitious space program frequently complain. It is true that we can grow the economy out of a deficit, but we should rightly be concerned about the drunken sailor spending by the president and Congress right now, since no one knows how much deficit spending is too much deficit spending.

But Heaven help us if some cynical Republicans can convince some equally cynical Democrats that deficits truly don't matter. Because when the Democrats do come back to power, and they will eventually, what will restrain these newly minted free-spenders from trying to fulfill every one of their utopian fantasies?

I'll give the Democrats some credit for showing, or at least saying the right words that imply a level of fiscal responsibility that doesn't seem evident from the Republicans these days. The Democrats by and large do raise taxes to pay for the level of government they want. Of course, I temper my, ahem, enthusiasm since I do believe that the level of spending, and therefore taxation, that the Democrats desire is far too high. Which is why I am worried about anybody formally adopting a policy that deficits don't matter. When the Democrats have been in power, the only constraint on some of the more extravagant ideas hatched in the wilder Democrat's illiberal utopian statist dreams has been a realization that at some point, there is real natural resistance to raising taxes, both by the people and by the economy at large. If we take that constraint away because deficits don't matter, then I'm selling everything and buying gold a few weeks before the next election, because hyperinflation ain't far behind.

As someone once said, don't take any power that you aren't willing to see wielded by your opponents.

Posted by Charles Austin at January 17, 2004 09:36 PM