A Contrarian Dialogue

Eber Views


Don't stop the axe

Music Ethics Be Damned

Index Capital Gains

A Most Egregious Pronouncement

Cocksure Public Spenders

Balanced Budget Busting

January 13, 1997

Balanced Budget Busting

I found Robert Eisner's January 11 editorial (We Don't Need Balanced Budgets) incredible, nearly to the point of being laughable, and your printing it made him look, despite his honorable credentials, almost silly.

His first contention is that we cannot get along without debt. According to his figures, businesses and private households owe some 3.8 trillion and 4.5 trillion respectively. But there is a critical difference between these debtors and the government as debtor.

Those who don't eventually go bankrupt have a plan which usually includes three elements: a design for paying off the debt, having the capital work for them in the mean time, and, over the long term, generating more revenues than expenses.

The government has no plan for any of these three elements. It pays off old debt with new debt (Clinton's short term debt coming due at the higher interest rates may explode the deficit). Instead of having the capital work for the taxpayer, the taxpayer more accurately works for the capital. And our representatives have, for the last 40 years, rarely worried about expenditures exceeding revenues.

His next absurdity is to state that to "eliminate or reduce the federal debt [would] eliminate or reduce our own assets." Since the government is not the only source of assets, this makes no sense. In fact, if the government did not need to borrow so much, that money would probably be used to fund and develop more private sector assets, ultimately growing the economy more than any wasteful government spending could.

He then claims that we are actually leaving not a debt to our children and grand children, but "assets of Treasury securities." When the debt has grown too large to pay it back, and the government ends up inflating the money supply to reduce the burden, what value will those fixed securities have? But even if there is no increase in the money supply, when the children or grandchildren cash in the security, then they still owe their share of the debt. This looks like a wash to me.

Next? "With government deficits, the rest of us are getting more from the government than we are giving." What? What about that which we collectively owe? And then he didn't explain the benefit we derive to have the government spend 3/4 or more of every dollar on administering that dollar. What charity could stay in business if donors knew about a ratio like that? The middleman effect of government is genuinely wasting our capital, capital that could be put to use directly and responsibly into the private sector. We don't need government to "fuel private spending" because after it takes its cut, there is less fuel. Individuals and businesses will prosper far more if they can keep more of their money.

He then says that deficits allow our after-tax income to be higher so we can buy Fords and Chryslers. But we still owe the money. This would have the insidious effect of making us think our standard of living is higher than it really is. Don't forget, someday, somebody has to buy back this debt. Is it good for us to be misled?

And then, incredibly, he abandons all these ridiculous justifications for an exorbitant national debt by declaring what must be done, and what, no doubt, the Constitutional Amendment should do: "Borrow to the extent that your debt stays in line with your income, and except when pressed by temporary hard times, use your borrowing not for current expenses but for investment." Yes!

So it seems very simple: balance the budget each year. Deficits will undoubtedly occur as a result of, say, natural disasters or high unemployment. These are tolerable. But the budget which is sent to the president's desk, omnibus as it might be, should not be tolerated unless projected expenditures equal projected revenues. This should be constitutionally required.