Milton Friedman – Deficits and Government Spending

Milton Friedman explains his contention that government spending is a far greater danger than government debt per se.

You being a from a rural area and being a pretty pragmatic businessperson i have been very concerned about the escalating deficits and feel that probably that’s the most dangerous thing for the america as we know it today in our economy and wonder what some economists some at the university of illinois which are in my district say well our deficits aren’t too

Large for our gross national product i happen to believe they are and one of what you thought would be on the long range effect of continued deficits but i do not believe that the real problem is i don’t agree with you at all because the real problem is not the debt but government spending it’s government spending which creates the debt that’s a real problem not

The debt itself let me see if i can put this in a very simple way there’s a certain total amount of resources that the united states has available to it call it a hundred if government spends 50 only 50 is available for private enterprise to you or private individuals to use for consumption and production and saving investment now so far i haven’t said a word

About how this 50 is financed whether this 50 is financed a hundred percent by what we call taxes or a hundred percent by what we call it borrowing it’s still true that’s the amount available to the right to the private system there’s only half of what of the total and so it’s this part that government spends that uses resources now what about the what difference

Does it make which way it is financed it does make a difference what we call a deficit is simply a form of taxation it’s hidden taxation its taxation in several foot one of them several forms and maybe if it’s if it’s really financed by printing money than this the taxation in the form of inflation if it’s not financed by printing money it’s a invisible tax on

All property because you own a piece of property but you have to figure from the future income of that property then more of it will have to be taken from taxes in order to finance this debt data sphere so it’s it and those are bad taxes they’re not wholly bad taxes but they’re not good taxes and therefore i would prefer not to finance by deficits on the other

Hand when people talk about how much damage interest payments are doing to the country i want you to name me any expenditure of government that does less harm than interest payments the interest payments don’t use up any resources there are no labor no labor that’s unavailable for something else there’s simply a transfer from taxpayers to bondholders and they do

Cost deadweight cost of collecting the taxes and the effect that has on incentives so there isn’t that cause but there’s no resource cost let me ask you a different question right now let’s suppose that the u.s. government miraculously the debt were to disappear overnight in interest payments which are now 100 and how much your 214 billion disappeared overnight

You think the deficit would be reduced by 214 billion you’re suggesting we would spend it absolutely absolutely absolutely so i regard the inter at the moment in a congress which will spend everything the tax system will raise i regard the debt and interest payments is performing a positive function of keeping money away from the congress to waste and the real

Burden were imposing on future generations is from spending not from the dead and why because go back if 50% is being spent by government only 50% is left to be used for capital formation or for consumption supposed government we’re spending 40% then you would get larger savings and more capital formation and that would produce a higher income for our children and

Grandchildren in the future so it’s spending that has all the bad effects that are attributed to the debt not the debt per se you

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Milton Friedman – Deficits and Government Spending By LibertyPen