Adumbration

I was challenged on the advisability of dramatic reductions in government spending in order to balance the Federal budget, with the concern as to what happens to everyone who is currently employed as a consequence of that spending.   A response requires broader assessment of the overall effects of deficit spending on the economy, beyond the immediately visible.

As we know, the deficit is funded through sales of debt instruments, which funds to purchase come from other parts of the economy. Take away the option to purchase government securities and the question turns again to how that money ends up being spent.  Government spending constitutes control over the way in which our time and resources are devoted. Take away deficit spending and the money formerly spent to purchase that debt immediately becomes available for consumer purchases and investment to satisfy future consumer needs, rather than (for example) continuing wars in the Middle East and military bases in 120 other sovereign nations around the world.

Redirecting those resources would certainly lead to changes. For example, instead of building so many bombs and missiles, we might choose to eat out one more time a week, or put a new roof on the house, or update the car one year earlier, or buy a new iPhone, or expand our restaurant, or develop a new solar power roofing material, or increase our auto factory output, or start a basement software shop.

The history of economic development is not a story of putting more money into the economy, it is one of doing more and more with less and less. The history of politics is replete with destruction, special interest privilege, and the failure to acknowledge that politicians and their advisors are just not smart enough to guide the economy like they think they are doing. There is extensive analytical and empirical work applied to this proposition, but it does not support the political class to wield the levers of power.