IS THERE A FEDERAL DEFICIT? "only in an accounting sense"

[Roland99]

A MINORITY VIEW
BY WALTER E. WILLIAMS
RELEASE: WEDNESDAY, APRIL 19, 2006, AND THEREAFTER

IS THERE A FEDERAL DEFICIT?
http://www.gmu.edu/departments/economics/wew/articles/06/deficit.html

Getting back to deficits, my question to you is this: Is there truly a deficit? The short answer is yes, but only in an accounting sense -- not in any meaningful economic sense. Let's look at it. If Congress spends $2.4 trillion but only takes in $2 trillion in taxes, who makes up that $.4 trillion shortfall that we call the budget deficit? Neither the Tooth Fairy, Santa nor the Easter Bunny makes up the difference between what's spent in 2005 and what's taxed in 2005.

Some might be tempted to answer that it's future generations who will pay. That's untrue. If the federal government consumes $2.4 trillion of what Americans produced in 2005, it must find ways to force us to spend $2.4 trillion less privately in 2005. In other words, the federal government can't spend today what's going to be produced in the future.

One method to force us to spend less privately is through taxation, but that's not the only way. Another way is to enter the bond market. Government borrowing drives the interest rate to a level that it otherwise wouldn't be without government borrowing. That higher interest puts the squeeze on private investment in homes and businesses, thereby forcing us to spend less privately. Another way to force us to spend less privately is to inflate the currency. Theoretically, Congress can consume what we produce without enacting a single tax law; they could simply print money. The rising prices, which would curtail our real spending, would act as a tax. Of course, an important side effect of doing so would be economic havoc.

Some Americans have called for a balanced budget amendment to the Constitution as a method to rein in a prolific Congress. A balanced budget is no panacea. For example, suppose Congress spent $6 trillion and taxed us $6 trillion. We'd have a balanced budget, but we'd be far freer with today's unbalanced budget. The fact of business is that the true measure of the impact of government on our lives is not the taxes we pay but the level of spending.

:crazy: :silly: :wtf:




Ah, ok, now I know why he sounds like he's batshit insane:


More from Mr. Walter E. Williams:

Minimum wage, maximum folly
http://www.townhall.com/opinion/columns/walterwilliams/2006/04/26/194892.html

Contributes at WorldNutDaily
http://www.worldnetdaily.com/news/archives.asp?AUTHOR_ID=18

Adjunct Scholar at the frickin' CATO Institute!!!
http://www.cato.org/people/williams.html

Popular guest on Rush Limbaugh's show
http://en.wikipedia.org/wiki/Walter_E._Williams

[EVDebs]

1. Yes, and "it's only a Paper Moon...

sailing over a cardboard sea,
But it wouldn't be make-believe if
you believed in me"

George Bush wants us to believe !

[mconvente]

2. It doesn't take a economics genius to know that the above article is bunk

"The fact of business is that the true measure of the impact of government on our lives is not the taxes we pay but the level of spending."

That's wrong. The government can have no impact on our lives if it doesn't have the revenue to spend on programs (hopefully better ones in the future). Where does that revenue come from? TAXES

This article makes no sense. Indeed, a :wtf: is called for!

[Warpy]

12. It's total horse shit that students in business school will be

forced to parrot if they want to graduate with decent grades. This is the kind of doubletalk that business programs excel in and why most of that particular discipline vote GOP. More and more, they've become nothing more than college level propaganda.

It's also why so many of the graduates are miserable failures when they get out into the real world and end up substituting bullying and harassment for the management skills they should have been learning instead of absolute garbage like this article.

[The Magistrate]

3. If He Thinks Bonded Indebtedness Does Not Constitute A Deficeit, Sir

He is doubtless an eager purchaser of bridges and beachfront proprties in Arizona....

[mconvente]

5. or that the defecit/debt is not palpable, so it doesn't matter

"Hey, yeah, we have a massive debt, but it's IMAGINARY - it doesn't REALLY affect any spending we do. It's just numbers on that big billoard in NYC or whereever!" :sarcasm:

I don't get it. The same demographic that is all about investing fails to realize that by reducing the national debt we look GREAT to foreign investors, and capital and revenue rises in our nation. Hopefully that will be put to use for the betterment of society, but at least we would have more dollars in our treasury in the first place.

[ret5hd]

7. but he DOESN'T thin that...

his job is to make YOU think that...

then he sells you the bridges and beachfront property.

[RaleighNCDUer]

8. Well, with global warming and the seas rising 300 feet

beachfront property in Arizona might not be a bad investment.

:hippie:

[Roland99]

9. Who sang that song about beachfront property in Arizona?

:)

[papau]

4. "drives the interest rate up" is not working because Asia buys the bonds

at low rates, so as to keep the currency relationship and the job growth going in Asia. In effect Asian countries are trading - losing - a bit economically while gaining jobs.

This snake will bite us eventually - but the deficit at this point is giving control of the US to other countries, rather than cutting our consumption or standard of living. We are not spending less now - we will in the future.

[depakid]

6. So called "free" market libertarianism

is often the province of the delusional.

[Dhalgren]

10. Is this guy doing a Steve Martin routine?

"You can borrow a Trillion Dollars and not owe a penny!" And if no one ever pays that money back, what then? He seems to think that if interest rates go up, that means people will spend less of their money and that that unspent money will somehow magically appear in the government's coffers. If prices are high it isn't your spending that is reduced, it is your purchasing power. You spend as much as you ever did - it just doesn't buy as much. How this is supposed to equate to governmental increases in revenue, I have no idea...

[sendero]

11. I don't know about you..

... but I can't take seriously anyone who uses the word "prolific" when they almost certainly meant "profligate" :)

"balanced budget amendment to the Constitution as a method to rein in a prolific Congress"

[ticktockman]

13. DOES WILLIAMS HAVE A BRAIN? "only in a technical sense"

Some might be tempted to answer that it's future generations who will pay. That's untrue. If the federal government consumes $2.4 trillion of what Americans produced in 2005, it must find ways to force us to spend $2.4 trillion less privately in 2005. In other words, the federal government can't spend today what's going to be produced in the future.

I think Williams has finally lost it. By his logic, I could spend twice as much as I earn but would not be running a deficit. Afterall, I can't spend today what's going to be produced in the future. My spending is simply forcing others to spend less!

First of all, government spending can cause the production of certain items to increase. As an extreme example, there would likely be little market for $200 hammers and $600 toilet seats if not for the government. In addition, some of this production may come at the expense of later production. Contractors who get rich off of high government spending may retire early and cease their production.

Even if production were to stay constant, there is still a serious problem. The government pays for its deficit spending by borrowing from current bondholders and pays the interest on that borrowing via taxes from future taxpayers. The cost of that debt may get pushed even further into the future via additional borrowing but, short of default, there's no way the future generations can escape its burden. In addition, more and more of those bondholders are foreigners. The following graph shows that the components of the debt since 1940:



The actual numbers and sources are at http://home.att.net/~rdavis2/debt07.html . As can be seen, almost half of the publicly-held debt is now owned by foreigners. It will be of little solace to future taxpayers that Williams came up with a fanciful way in which to argue that there is no deficit. They will be paying the interest on the resultant debt, all the same.