How To Run a Federal Budget Surplus

by: Gary North

From time to time, someone asks me: “What would you do about the Federal deficit?” I have this amazing answer: “End it immediately. Then run a surplus until it is paid off 100% – exactly as I would do with my own budget.”

Of course, this assumes that I was ever put in charge of the Federal government’s checkbook. That would be unlikely. It would also be revolutionary. I don’t believe in political revolutions. Revolutions make things worse. They require centralized power and violence – a point that Karl Marx’s collaborator, Frederick Engels, made clear in his 1874 essay, “On Authority.” He wrote: “A revolution is certainly the most authoritarian thing there is; it is the act whereby one part of the population imposes its will upon the other part by means of rifles, bayonets and cannon – authoritarian means, if such there be at all; and if the victorious party does not want to have fought in vain, it must maintain this rule by means of the terror which its arms inspire in the reactionists.” That is not my agenda.

When free market economist Ludwig von Mises was asked what he would do if he were put in charge of the economy, he replied with one word: “Resign.” That was the correct answer.

We need to think carefully about what civil governments are and are not. Civil governments are not like individuals. They are irresponsible in ways that individuals never can be, because other individuals will intervene to stop irresponsible individuals before they inflict harm on everyone around them. So, we do what we can to call government irresponsibility to the attention of others. We fight battles that we can win, or at least might win, which are few and far between in the latter stages of national irresponsibility, which we are obviously in.

A successful political battle begins with ideas. So, in the name of responsibility, but not in the name of political revolution, I offer my program for balancing the budget.

The first step is to acknowledge that government debt is in principle different from personal debt. Government debt is addictive politically in ways that personal debt is not. Government debt applies to different people in different ways, whereas personal debt applies to a debtor who is legally responsible for his actions. Government debt does not have short-term negative feedback in the way that personal debt does.

Think of the Federal government as a local tavern. It is a unique tavern. In this tavern, someone else always pays for the drinks and also suffers any hangovers, decade after decade. The incentive to sober up is remote. “Bartender, set ’em up again!”

Yet it is worse than this. With alcoholism, there is no cadre of experts telling a nation of visible drunks that alcohol is not a major problem if it is consumed responsibly, and then insist that people can stop drinking at any time. But why should people stop drinking in our hypothetical tavern?

The experts in government debt always say this: “If the government begins to reduce its spending immediately, there will be no major problem. If Congress waits, the nation will suffer the consequences. Congress must begin now.” But the fiscal drunks have heard this before all of their lives. They consume more, and nothing really bad ever happens. So, they run up the tab. The party goes on. “Bartender, set ’em up again!”

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