Buttonwood observes:
America has run a deficit for 40 of the last 44 years; Britain for 51 out of 60 and Spain for 45 out of 49. France has not balanced its budget since 1978; Italy since 1960.
I get the theory that in recessions one ought to run a deficit so as to stimulate the economy. But we haven't been in a recession for "40 of the last 44 years." The deficit is not about fiscal policy, it is about trying to have both a military hyperpower and a pervasive nanny state set of entitlements. It's long past time we tried austerity for a while.
Personally, I'm starting to believe that getting Paul Ryan into ever-increasing seats of power may be our last shot at sensible fiscal policy. Certainly, there's no reason to think the incumbent will make any progress. Obama's solution--to the extent he has one--depends on increasing taxes on the 1%. The troubel with solving the deficit with tax increases, of course, is obvious. As Milton Friedman explained:
... postwar experience has demonstrated two things. First, that Congress will spend whatever the tax system will raise—plus a little (and recently, a lot) more. Second, that, surprising as it seems, it has proved difficult to get taxes down once they are raised. The special interests created by government spending have proved more potent than the general interest in tax reduction.
If taxes are raised in order to keep down the deficit, the result is likely to be a higher norm for government spending. Deficits will again mount and the process will be repeated.
The solution remains a combination of starving the beast and cutting spending.
