October 11, 2013
THE VALETUDINARIANS EXIST TO BE USED:
Niall Ferguson Gets It Backwards, The Budget Deficit 'Threat' Is An Opportunity (John Tamny, 10/10/13, Forbes)
Posted by Orrin Judd at October 11, 2013 4:12 AMBack in 2008 in the lead-up to the 2008 presidential elections, John Stewart's Comedy Channel show did a feature on John McCain going back to 1980. Each year offered a video clip of the Arizona Senator warning of a looming fiscal crisis related to the nation's budget deficit.Though one would be foolish to use The Daily Show as an economics lesson, the underlying point of the McCain segment was valid. Politicians, economists and mere members of the U.S. citizenry have been predicting deficit doom for as long as this writer's been sentient, and probably even as long McCain's been kicking. [...]Simply put, economic growth is easy. Taxes are a penalty placed on work and investment, so reduce the penalty on both to get more of both. Regulations don't work (see the banks overseen by the Fed, SEC and the rest), but they do inhibit the profit motive for distracting executives who should be focused on the shareholder, and by extension, the customer. Trade is why we get up for work each day so that we can exchange our surplus for that of others, so when barriers to trade are put up, we foster inefficiency all the while taxing the purpose of work. Money is how we measure the value of the goods we exchange, and the investments we enter into, so stabilize its value. Notable with money is that in his masterful book, The Cash Nexus, Ferguson wrote of 'forever' British debt instruments that forever paid out low rates of interest precisely because the Pound had a stable definition in terms of gold.To make basic what already is, growing countries never have to worry about deficits simply because their debt is so attractive. Greece isn't suffering a debt crisis because it owes too much money, rather it's in trouble because its even more hapless political class doesn't understand that its debt problems would disappear if it adopted growth policies like the ones listed above. As Forbes contributor Louis Woodhill has pointed out regularly, interest rates on Greek debt became even more onerous once its politicians raised taxes to 'fix' the problem. What they missed is that the deficit problem was one of too little growth. It's much the same here.In short, rather than worry about a debt 'threat' that never seems to materialize, we should view the deficit as an opportunity to implement policies that always work, and that may even turn people like John McCain into optimists.