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Posted By Don Boudreaux On January 3, 2012 @ 8:46 am In Budget Issues,Debt and Deficits,Hayek,Inequality,Myths and Fallacies,Other People's Money,Seen and Unseen | Comments Disabled
Is Pres. Obama correct that upward income mobility in America is declining? Scott Winship thinks not . (HT Tyler Cowen)
Steve Landsburg has a different take on the “public debt doesn’t matter if we owe it to ourselves” claim . As usual, Steve highlights surprising truths that go unseen until he turns the spotlight of his intellect on them. And while I agree with him that the size of the public debt (measured relative to whatever benchmark) is more manageable in a growing market economy than many people (especially of late – but not always  – conservatives) believe, the historical reality that growing public debt in the U.S. during the 20th century hasn’t led to the often-predicted calamaties is insufficient reason to regard a large and growing public debt as a problem insufficiently worrisome to warrant serious attention. See, for example, the link just above to Jim Agresti’s summary stats.
More generally, because debt financing does indeed allow politicians and voters today to saddle taxpayers tomorrow with the bill for today’s government expenditures, the likely result of ready recourse to deficit financing is more unwise government spending than would occur if current spending had to be funded by current tax receipts.
If A gets to spend B’s money to purchase goodies for A (or even for C), then A will not only spend more, but will spend more carelessly, than if a larger chunk of what A is spending is A’s own money. Deficit finanicing increases the size of government’s bite out of the private economy, and decreases the social usefulness of these expenditures. Especially when this “spending other people’s money” effect is combined with widespread acceptance of the fallacy that the debt is not much of a burden insofar as “we owe it to ourselves,” a plausible prediction is that government will grow too large, do too much, and spend more foolishly than under a regime in which government is obliged to fund all or most current expenditures with current tax receipts.
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 With unequaled insight, Bryan Caplan draws important lessons from Daniel Kahneman’s latest book: http://econlog.econlib.org/archives/2012/01/kahneman_greed.html
 Ed Dolan offers his take: http://www.economonitor.com/dolanecon/2011/12/31/best-economics-news-story-of-2011-dickens-meets-hayek-in-a-mumbai-slum/
 Dharavi: http://cafehayek.com/2011/12/lessons-from-dharavi.html
 Scott Winship thinks not: http://www.nationalreview.com/articles/286874/president-s-suspect-statistics-scott-winship
 Ronald Coase: http://www.econlib.org/library/Enc/bios/Coase.html
 David Theroux celebrates it, too: http://blog.independent.org/2012/01/02/nobel-laureate-economist-ronald-coase-turns-101/
 Alex Tabarrok on Krugman vs. Krugman: http://marginalrevolution.com/marginalrevolution/2012/01/krugman-v-krugman.html
 Jim Agresti summarizes findings from a 2010 paper in the American Economic Review on the relationship between public debt and economic-growth rates: http://www.justfacts.com/nationaldebt.asp#consequences
 Steve Landsburg has a different take on the “public debt doesn’t matter if we owe it to ourselves” claim: http://www.thebigquestions.com/2012/01/03/actually-we-owe-it-all-to-ourselves/#more-6893
 but not always: http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wreck.html
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