Sunday, January 8, 2012

Boudreaux on the Myth of Public Debt Irrelevance

In a thoughtful post, Don Boudreaux translates Buchanan and explains why issuance of public debt not only matters but can even be unethical:
Suppose the government of A gives each adult citizen of A between the ages of 18 and 65 the right to force another randomly chosen adult citizen of A to work six months out of every year for the first adult’s benefit. Every adult has this right – which government steadfastly enforces whenever that right is exercised – to command the labor (or the fruits of the labor) of another adult. No adult is exempted from the obligation to labor for another adult.

Would resource allocation be unchanged from what it would be in the absence of this policy of mutual conscription? Does the answer change by recalling that each adult citizen of A, after all, devotes his or her conscripted labor only to another adult citizen of A? What if we specify that the total aggregate labor hours worked under this policy is the same as it would be in the absence of this policy: would resource allocation then be the same as without this policy?

Isn’t deficit financing of government spending equivalent in some essential ways to the above hypothetical? The ability to free-ride on others’ labor (or, more generally, resources) leads to the misuse of that labor (or resources). This fact isn’t altered if those doing the free-riding are citizens of the same country as are those who are free-ridden upon – or by the fact that each free-rider is also freely ridden upon by someone else.

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