Creating New Frontiers of Ignorance

I don't know if this ever happens to anybody else. Sometimes when I'm reading an article (usually my fifth or sixth article and I'm desperate), I will see something funny or confusing and go to write about it. After a moment of writing I turn my attention back to the paragraph in question, and, in a magic eye like fashion, it resolves itself back to making sense. I note this phenomenon as a prelude to talking about why Walter E. Williams latest article doesn't seem to make sense.

Going to present a big more of his article than I usually do, for discussion purposes. It's on the deficit.

Let's push back the frontiers of ignorance about the federal deficit. To simplify things, I'll use round numbers that are fairly close to the actual numbers.

The nation's 2005 gross domestic product (GDP), what the American people produced, totaled $13 trillion. The federal government consumed $2.4 trillion, but it only received $2 trillion in tax revenues, leaving us with what's said to be a $.4 trillion budget deficit.

So far, so good, as near as I can tell. He sets up the question, where do the funds to cover that $.4 trillion come from.

By the way, it's sheer constitutional ignorance to say that President Bush spends or lowers taxes. Article I, Sections 7 and 8, of the U.S. Constitution gives Congress authority to spend and tax. The president only has veto power that Congress can override.

I don't know who is talking about here; if he is complaining about attributing the Bush tax cuts to President Bush he's just splitting hairs. President Bush didn't technically pass his tax cuts (as Williams notes, he couldn't) but his administration drafted the law and got it introduced as his tax cut plan. So if this is what Williams is complaining about, it doesn't make a lot of sense.

On the other hand, maybe Williams surrounds himself with people who don't realize that the Congress passes laws, not the President.

Getting back to deficits, my question to you is this: Is there truly a deficit? The short answer is yes, but only in an accounting sense -- not in any meaningful economic sense. Let's look at it. If Congress spends $2.4 trillion but only takes in $2 trillion in taxes, who makes up that $.4 trillion shortfall that we call the budget deficit? Neither the Tooth Fairy, Santa nor the Easter Bunny makes up the difference between what's spent in 2005 and what's taxed in 2005.

Yeah, thanks for clearing up the fact that the Tooth Fairy, Santa and the Easter Bunny don't make up the deficit difference. That really helps us out. Cause I'm sure a lot of your readers thought that might be the case. I am looking forward to seeing what makes up that $.4 deficit, though, now that you've cleared up what it isn't.

Some might be tempted to answer that it's future generations who will pay. That's untrue. If the federal government consumes $2.4 trillion of what Americans produced in 2005, it must find ways to force us to spend $2.4 trillion less privately in 2005. In other words, the federal government can't spend today what's going to be produced in the future.

Ah. So future generations won't have to pay for the deficit either - the Government has to force more money into their hands right now to pay the bills right now. So where does that money come from?

One method to force us to spend less privately is through taxation, but that's not the only way. Another way is to enter the bond market. Government borrowing drives the interest rate to a level that it otherwise wouldn't be without government borrowing. That higher interest puts the squeeze on private investment in homes and businesses, thereby forcing us to spend less privately.

This is accurate, up to a point, but it kind of makes his last paragraph a liar, doesn't it? I mean Government Bonds are a promise by the government that if you give them X dollars today, they will give you Y dollars tomorrow. Assuming the Government doesn't default on it's promises, that means that people down the road will be responsible for paying out.

William's solution is, as you might expect, for the government to spend a lot less money. But he's made it clear that 2/3rds of the government should be shut down (leaving the military and . . . well the military at any rate). So presumably Government as he envisions it will be considerably cheaper.