“Balanced budgets” have nothing to do with limited government. Neither does a budget surplus. As with most notions crafted by economists and the budgetary scolds they’ve long enabled, the notion of balanced budgets as inhibitors of big government is a massive fraud.
Yet the idea persists. See a recent Wall Street Journal news account about how we got here, the “here” being budget deficits and debt born of unbalanced budgets. The report indicated that “In 2000, the federal government actually ran a surplus, and the Congressional Budget Office, Capitol Hill’s nonpartisan scorekeeper, projected the Treasury would keep collecting enough revenue to pay for all government programs and generate continuing surpluses.” There’s your fraud, one that the economists inside the CBO and in the profession more broadly have continued to gloss over.
To see why, stop and contemplate one empirical truth: there’s more wealth in the U.S. than any other country in the world, by far. Think about the previous truth for a bit, particularly with the faux correlation between “balanced budgets” and limited government top of mind. Which requires a look back to the allegedly halcyon period of "surplus" tax revenue.
That was when government was divided in Washington such that friction between the two parties made for relatively less collegial governing that acted as a limited restraint on government waste. But of much greater importance, stop and consider the discovery of the internet and its myriad commercial applications, something that resulted in a surge of investment stateside alongside a surge of foreign investment into U.S. innovation in the internet space from around the world.
That tax revenues soared during this stretch was a statement of the obvious. Which means politicians weren’t being parsimonious so much as there was much more tax revenue to spend. Limited government? Please.
Furthermore, as my upcoming book The Deficit Delusion makes plain with great frequency, it’s revenue surges that logically correlate with more debt. Which is no insight, but it’s an insight lost on left, right and supply-side thinkers who imagine the path to reduced deficits and debt is paved with more tax revenue. Quite the opposite, which is similarly no insight. What has lots of incomings in the present, and that is expected to enjoy lots of incomings in the future, can easily borrow. In other words, and contra the CBO, surging tax revenues that briefly coincided with alleged “balance” and “surplus” foretold the eventual growth of the debt.
What’s important about all this is whether in surplus, balance, or deficit is a distinction without a difference. Precisely because the U.S. Treasury has taxable access to the earnings and wealth of the richest, most productive people on earth, the annual extraction of precious resources is going to be enormous and promises to grow without any kind of serious restraint. Which speaks to the true burden of government.
It’s not whether the spending is in deficit, surplus or in between, it’s how much is being extracted. Economists who express endless worry about deficits and debt do so while decrying the alleged “immorality” of governments leaving debt behind for the "grandchildren." They’re missing the point.
The real burden for the grandchildren is the size of government left behind, while the crisis is now as trillions that would otherwise be invested are consumed in politicized fashion. Exactly because Americans are so productive while being excessively overtaxed, a “balanced budget” is a fraudulent distraction; one that hides an unseen but massive crisis of government right now, all the while obscuring the true burden for future generations.
