FRONT PAGE CONTRIBUTOR
Yes, the government can run out of money
While we wait for the meat wagon to arrive and carry off what’s left of Matt Yglesias after Erick Erickson’s epic ground-and-pound this morning, let me add that the popular liberal fantasy of unlimited government money is one of the most dangerous ideas in the modern world. Our children will grow to hate us if we don’t kill this idiotic talking point stone dead.
The argument, in essence, is that since government can print as many dollar bills as it pleases (or conjure them out of the electronic ether) Uncle Sam’s fortune is limitless, so there’s no reason to worry about public debt. Maybe we’ll have to think about slowing down the debt express at some point in the distant future, but for now, just relax and fall asleep to the comforting hum of those Treasury printing presses!
A quick glance at supermarket prices in Zimbabwe should illustrate one of the many reasons this is a foolish argument, even for a five-minute cartoon. Sure, you can print all the physical dollar bills you want, and shoving numbers around in an electronic spreadsheet is even easier, but at some point that system will break. The value of money becomes completely detached from the numbers printed on the currency. No government in the world has ever really “run out of currency,” but plenty of them are helpless fiscal basket cases.
It is then observed that inflation is pretty well under control at the moment (actually a somewhat debatable statement, given that inflation equations were long ago rejiggered to keep it from making the government look as bad as it did during the Carter years) so there’s no reason for even modest concern. If liberals actually believe that, I’d like to enlist their support in my campaign to stimulate the U.S. economy by imposing an extremely low flat tax. We don’t have to get rid of taxes completely, we’ll just trash the nightmarish labyrinth of rules and special exemptions that currently suck billions of dollars in productivity out of the U.S. economy every year. Taxes on a postcard, same rate for everyone!
One of the loudest arguments against that kind of tax reform is that it would cost the government too much money, especially during the first few years of the revised tax code’s existence. Well… so what? We can just print more money, right? Matt Yglesias says that’s no problem. We can have a tax holiday that would jolt even Barack Obama’s zombie economy back to life, followed by a bold new future of economic freedom, and even if Flat Tax proponents are lowballing the cost of the transition, it doesn’t really matter. Just shove some more hay in front of the deficit unicorns chained up in the Treasury basement, and put a bucket behind them to catch all the Skittles that pop out.
If there was ever a good reason to toss another couple of trillion dollars on Uncle Sam’s unlimited credit cards, putting a stake through the heart of our insane tax system would be it. For that matter, a Flat Tax would have been a vastly better use for the money wasted on ObamaCare, and it wouldn’t have involved a $600 million website that needed another $300 million in repairs before anyone could use it. The resulting economic boom would have given us plenty of resources to deal with health care issues, especially for the incredibly small number of previously uninsured Americans who have thus far purchased ObamaCare policies (a number that, peering through the blizzard of B.S. pouring out of this Administration, is probably closer to half a million than one million.)
Or, if you don’t want to go for the full Flat Tax transformation, we could discuss some spectacular pro-growth tax cuts that would do wonders for the flagging American workforce – from capital gains cuts, to a payroll tax holiday, to at least abolishing the hellish Alternative Minimum Tax. But no, if you bring up any of those ideas, Matt Yglesias and the rest of the “debt doesn’t matter” crew instantly turn into shrieking deficit hawks, howling that the government cannot possibly be expected to do without whatever amount of revenue might be lost. Even when a strong case can be made for increased net Treasury revenue from such tax relief (ask Wisconsin governor Scott Walker about his tax-cut budget surplus!) the liberal deficit hawks will scream that we can’t possibly take the risk that revenue might diminish.
Why, it’s almost as if these leftists do think the government could run out of money after all! You only have to mention tax cuts, and suddenly they’re deleting their stupid “Washington can print infinite money” cartoons off their websites, and wailing that it would be crazy to risk making the national debt any worse by letting free people keep more of their earnings and profits.
What the Left is actually saying is that spending can go on forever, with only a tenuous relationship to the amount of revenue taken in. They’ll concede that some sort of relationship must exist – you’ll notice the more respectable liberal gets pale and nervous when his excitable ideological soul-mates start proposing that Washington simply hire every unemployed person for $30,000 a year to “fix” the workforce problem, or maybe buy everyone a house. That sort of thing would certainly bring the inflation genie boiling out of his bottle. Keep inflation tamed, they argue, and there’s no reason why the government’s spending agenda should be limited by how much money the people of the United States choose to give it!
This is actually a demand for vast government power and reduced liberty, cloaked in fiscal language. If the government is required to submit a balanced budget, or run only very modest deficits, the people enjoy supremacy over the State. Politicians become obliged to be honest about costs and benefits. Each new spending proposal must be accompanied by either an immediate tax increase, or cuts to existing programs. Obviously, the Ruling Class hates that kind of talk. They chafe under that degree of submission to the free people of the nation. Budgetary restraint makes politicians our servants; irresponsible deficits make them our masters, by allowing them to make all kinds of wild promises that nobody has to pay for… yet.
Government spending is rarely a one-shot deal; it creates obligations that roll forward, Congress after Congress, cranking up spending baselines. When you hear a liberal say that deficits are no big deal, remember that his leaders aren’t just buying a ton of stuff and forwarding the bill to your children; they’re creating constant spending obligations that cannot easily be rolled back or canceled, especially as growing government eats away at the economic strength of the private sector that pays for everything, and degrades our human capital through dependency. Aren’t liberals already lecturing us that ObamaCare can never be repealed, no matter how much of a disaster it is, because too many people have already become dependent on its billions in spending? It’s an avalanche, and it will eventually hit the bottom of the fiscal mountain.
The thing about hyper-inflation is that it happens very suddenly. All the wise men are usually predicting smooth sailing just a few months before the tidal wave hits. The people are told not to worry until there’s a crisis… and then when the crisis arrives, everyone starts yelling, “Why did we not see this coming? Why didn’t we do something, back when the choices weren’t all impossible?” The window of options narrows as debt accumulates. What sense does it make to hold off on doing something until nothing can be done?
The debt load is having real effects on us right now, particularly in the area of debt service costs, which have risen enormously. That’s money right off the top of the federal budget, payments that must be made. We can handle it for the time being, although it hurts to see billions flying out the door just to cover yesterday’s spending sprees. The day when we won’t be able to cover those costs, without either immense tax increases or serious cuts to the rest of the budget, is not far off – we’re talking about years, not decades. And if the credit rating of our government takes a hit, interest costs will explode overnight, putting a decisive end to all pretenses that inflation can be managed while debt piles up to the heavens. One of the things that makes credit agencies nervous is watching Americans assure each other that debt can increase forever, while Washington prints infinite money. It’s a concern every credit analyst has voiced in their reports.
Money is a tool for allocating resources. Resources are finite. Eventually money becomes so distorted that it can no longer effectively transmit economic data. In a high-performance economy like ours, the amount of static we can tolerate in our financial data stream is quite small. The government can indeed run out of money, long before its printing presses stop rolling. It happens when those crisp new dollars no longer play a precise role in evaluating and investing resources, including human labor… at which point the government has to resort to other methods of delivering its commands.
If we wait to address the problem until we’re swallowed by a crisis nobody can deny, we’ll find ourselves trying to pry benefits from enraged dependency groups that are wiling to fight for what they’ve been promised, no matter how ugly inflation suddenly looks. In fact, an inflation spiral will make everyone even less willing to part with their slice of the Big Government pie. You really don’t want to see what that’s going to look like.