Foldvary: The U.S. Budget Deficit and Fiscal Cannibals
|July 21, 2003||Posted by Fred Foldvary under Editorials|
The U.S. Budget Deficit and Fiscal Cannibals
by Fred E. Foldvary, Senior Editor
The U.S. federal government budget deficit is like a weed that just keeps growing. The latest figure from the White House is a $455 billion dollar deficit. That amounts to $2400 for every American. With half the population consisting of children, retired folk, the unemployed, and others who don’t generate income, the deficit per income earner is around $4800 per year.
In the short run, the deficit won’t hurt the economy or the taxpayers. Much of the deficit is borrowed from foreigners. U.S. treasury debt is still considered to be the safest in the world. Until there is a serious movement or consideration in the U.S. to repudiate the debt, U.S. government bonds will continue to be safe from default. So long as lenders outside the U.S. are willing to buy U.S. bonds, the federal budget deficit will have little effect on interest rates.
But in the long run, the huge and increasing federal deft will drain the U.S. economy of wealth. With interest rates low at present, the debt burden is not hurting too much. But as sure as the sun rises, as the economy recovers and expands, interest rates will rise again and will be a huge annual expense for the federal government and thus of the taxpayers. Americans will be paying hundreds of billions of dollars more to foreigners for benefits obtained in the past, substantially reducing the American standard of living.
The first thing that needs to be corrected is the federal government accounting. U.S. corporations have been blamed, and properly so, for misleading and even fraudulent accounting practices. But look who is talking! The same government that is prosecuting corporate scandals is itself guilty of phony accounting.
One problem with the federal accounting is that the budget includes funds that should be accounted separately. Social Security is the biggest case. There is now a surplus from Social Security as post-World-War-II baby boomers are pouring billions more into social security than the retired folk are taking. But a dozen years from now, these boomer babies will be retiring and getting Social Security payments. Social Security will then go into deeper and deeper deficits.
Social Security, medicare, and other such programs should be accounted as separate funds, since what appears to be a current surplus is really offset by a liability, funds owed to future retired folk. But instead, the Social Security funds are merged into the federal government budget. So real federal deficit is even greater than what the official figures state.
Secondly, the federal budget should be split into a capital and a current account. The capital account should be for major investments such as highways and government buildings. Just it can be good economics for a person to borrow funds to buy a house, or for a company to borrow to build a factory, it makes sense for the government to borrow to finance major capital goods which have a long life during which the benefits are paid back, although there is also nothing wrong in paying for this from savings or income.
The current account should be for transfer payments, wages, and current consumption. These are current benefits or expenses, and so they should be paid for by those who are benefitting or being tax-punished for other people’s benefits. When the economy is expanding, the current account should not be in deficit. During a recession, tax revenues fall, so the government can establish a special depression account which is repaid when the economy recovers.
These accounting standards should be in the Constitution, making it more difficult to wriggle out of. Yet, even though many people are worried about the U.S. federal deficit, few are calling for Constitutional changes that would bring proper accounting standards to the budget.
A big part of the budget problem is that government gets revenue by confiscating legitimately earned wealth. Governments world-wide are fiscal cannibals. In a democracy, the people vote to put in chiefs who then cannibalize their wealth. Ultimately, the fiscal deficit is rooted in the moral deficit that fails to understand that it is morally wrong to be a cannibal. This is moral and economic insanity, yet it is so ingrained in the culture that few question it.
A sane government budget obtains its revenues from voluntary user fees, from penalties on the imposition of social costs, from the surpluses of natural resources, and from the land rents that its services generate. Basically, charge people for benefits received.
Humanity has ended most culinary cannibalism, but it now widely practices fiscal cannibalism. Governments tax-cannibalize current producers and deficit-cannibalize future producers. Chiefs of state! Know ye not that it is morally wrong to eat your fellow man? Someday in the distant future, fiscal cannibals will be seen with the same revulsion that we now see in eating human flesh. Just as killing people for their meat is morally wrong, so too is stealing and killing the labor exerted by human flesh.
Copyright 2003 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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