Friday, February 23, 2007

Reich on the Importance of a Balanced Budget

In a nutshell, he says it's not important. Well, he actually goes further, saying it's a "stupid idea." He concludes:
No one in their right mind should worry about balancing this silly agglomeration. Hats off to politicians (like John Edwards) who recognize this. We should worry instead about putting aside enough to deal with past obligations, devoting no more than we can now afford to current needs, and making adequate future investments – even if we have to borrow in order to make them.

I didn't find his analysis very convincing. We don't "have to" borrow in order to make adequate future investments. The only reason we borrow is political expedience -- politicians prefer to avoid tax increases, so they borrow instead. But when you borrow, you have to pay back the money later (with interest), which increases the "past obligations" in future budgets and thus reduces your future ability to invest or meet current needs. Basically, you can either pay for things now or pay (more) for them later. There's no free lunch. The problem is, the politicians in power at any given moment want to spend a lot on programs they believe will get them votes, even if means borrowing. They're happy to leave it up to future politicians to clean up the mess.

There are definitely instances where current spending needs are so high that raising taxes is not an option because it would cripple the economy (e.g. a war). But that's pretty rare, and I think people arguing for deficit spending have a heavy burden to show that whatever pet program they're advocating merits adding to the deficit.

No comments: