Total GDP is about 5 yrillion. Which would you rather have, a government that spent 1 trillion a year, completely in deficit, or one that spent 2 trillion a year, with no debt?
Think about it, the deficit way you keep 4 out of 5 dollars, the balanced budget way you keep only 3 out of 5. In a tax free, 100 % debt based nation, the taxation ends up in the form of inflation, a true flat tax. That's why it is important to keep driving down the tax rate come hell or high water.
That's a strawman argument. Sennholz does not argue for additional spending. In fact, he states the following:
To most people government spending is a panacea for all economic evils and difficulties, a cure-all for human woes. Where economic stagnation impedes progress and prosperity, government is expected to stimulate through deficit spending. Where there is unemployment, government is expected to supplement private demand and thus create jobs. Where there is poverty it is expected to provide affluence through more spending and debt. But nature forgives no debt and grants no benefit without cost.
There can be no beneficiary of government largess without a victim of exaction. Government cannot pile up debt without ever paying it off; all government expenditures must ultimately be paid out of tax revenues or be repudiated through inflation, which is merely another form of taxation. Either immediately or ultimately every dollar of government spending is taken out of the pockets of taxpayers. When seen in this light, the supposed benefits of government spending are rather questionable. To build a pyramid of Federal debt is to delay the inevitable and pay interest thereon.
It sounds to me as though he is arguing against using spending as a "panacea for all economic evils and difficulties". In any case, his main point is that there is no free lunch. We have to pay for the spending, one way or another.
If deficits do not matter, as you say, how do you propose that we pay the interest on the additional debt? If future taxpayers must pay it, then surely those taxpayers will think that deficits matter. The only way that it could be otherwise would be for the government to borrow the money to pay the interest, then borrow the money to pay interest on that additional borrowing, and so on. That is, deficits do not matter only if you believe that we can institute a pyramid scheme to pay the interest and continue that scheme forever.
In fact, the only deficits that are justified are those that are run for emergencies (with the plan to pay the debt down when the emergency passes) and investment (where the debt can be paid down from the fruits of the investment). Sennholz seems to believe that the latter case is rare. He states:
Government debt usually signals the consumption of individual savings and economic resources. It is a rare exception for government to invest its funds productively, applying property for future income or benefits. Politics tends to favor present use and enjoyment at the expense of the future. A huge debt signals huge consumption of economic resources for political ends, incurred in the past at the expense of the future. It speaks of factories not built, stores not opened, businesses not started, and jobs not created.
By the way, the current GDP is about $10.8 trillion (see the table at http://home.att.net/~rdavis2/debt40.html. The GDP was about $5 trillion back in 1988, shortly after the first printing of this article.
"If deficits do not matter, as you say, how do you propose that we pay the interest on the additional debt?"
Quite simple, hit the start button on the printing press. W
" If future taxpayers must pay it, then surely those taxpayers will think that deficits matter."
They have already paid it through inflation. "money" is not a real substance, it is a concept. On the other hand, there is no free lunch, so anything the "government" does (whether through taxation, running the presses, regulations, etc.) by definition must be paid for.
"The only way that it could be otherwise would be for the government to borrow the money to pay the interest, then borrow the money to pay interest on that additional borrowing, and so on."
Or print money, which means society as a whole pays, the essence of a flat tax.
"That is, deficits do not matter only if you believe that we can institute a pyramid scheme to pay the interest and continue that scheme forever. "
Not a pyramid scheme, there is no free lunch. If the deficit is monetized, that means it is paid for by the economy as a whole.
"In fact, the only deficits that are justified are those that are run for emergencies (with the plan to pay the debt down when the emergency passes) and investment (where the debt can be paid down from the fruits of the investment)."
Accept for the moment that government is highly inefficient, and money simply printed paper. Again I ask, which would you rather have, a 1 trillion dollar a year deficit, or a 2 trillion dollar balanced budget??
Think man. I start a country of you and me, I'm the government, you the subject. You are given $10,000 in monopolty money and two cars. Which would you rather have, me tax you $10,000 and buy both your cars for that $10,000 (a completely balanced budget)? Or, me (the government) print up $10,000 in Monopoly money and buy just one car with it? In which case are you better off?
The point is deficits are meaningless, what counts is the percent of GDP devoted to inefficient government.