SO MUCH EASIER TO SPEND: Other People’s Money. In his excellent essay on James Buchanan’s lessons on government profligacy, Donald Boudreaux shreds the standard rationale from Keynesian economists for running up the budget deficit — that it’s nothing to worry about because we’re just borrowing the money from ourselves.
The Keynesian argument regarding debt that “we owe to ourselves” is that the losses to the citizen-taxpayers who must pay the bondholders are offset by the gains received by the bondholding citizens. Voila! Debt creates no net burden on future generations! But this argument, whatever its other flaws, ignores the fact that debt financing nevertheless allows some people (namely, today’s citizen-taxpayers) to spend money belonging to other people (namely, tomorrow’s citizen-taxpayers). And thus debt financing encourages excessive government spending.
But no matter. Widespread acceptance of this Keynesian argument conveyed the false impression that debt financing imposes no burden on future generations. Thus today’s citizen-taxpayers are relieved of qualms they once suffered about government spending borrowed funds. The resulting explosion of government’s net indebtedness, both in Canada and in the US, was no surprise to Buchanan, but it was a source of great worry. That worry now seems justified.
Read the whole thing: the Fraser Institute’s Do Budget Deficits Matter?