On economic illiteracy and government debt
When governments run deficits, paying for current programs with borrowed money, they impose burdens on future taxpayers. Those unlucky souls have to repay that money, with interest. How do they do it? Through some form of sacrifice – higher taxes, lost opportunity, and so on.
But as George Mason University’s Don Boudreaux notes, deficit spending doesn’t defer all its costs to the future. There are plenty of immediate costs, too:
For instance, to the extent that government subsidies of farmers and of aircraft producers are funded with borrowed money, similar burdens are created immediately: Resources are diverted from efficient to inefficient uses, causing even today’s citizens-taxpayers to suffer as a result of deficit-financed government programs.
Every dollar extracted to pay for a widget today means there’s that much less to buy something else tomorrow. And probably today, too. So why do we continue to run government on debt? Thank economic illiteracy:
Only someone who is convinced that government will undertake only economically worthwhile projects regardless of the means of financing – or someone who doesn’t understand economics – can look favorably upon deficit financing by government.
As long as a politician can tell the folks back home he’s delivering the goods for them, such behavior will continue. Right up to the moment when the holders of all that debt demand payment.