Dan Mitchell of the Center for Freedom and Prosperity reminds us that we can’t reform alcoholics by giving them more to drink — and you can’t reform politicians by giving them more money to spend. The problem of deficit spending isn’t so much the deficits as it is the spending. Reasonable deficit spending can be sustained for some period of time, as long as the spending doesn’t get so bad that government has to start printing money to pay for it. That creates inflation, erodes the value of the debt held by creditors which makes them less likely to buy more, and pushed interest payments so high that it creates a cycle of destruction for the currency. Hiking taxes isn’t the answer either, as the capital destruction means economic stagnation, which undercuts the ability to pay the interest service, let alone the principal of the debt.
So what’s left? For politicians, the unthinkable:
Expect to hear a lot of concern from Democrats in 2010 about the deficit. They want to use it as a lever to push for higher taxes, including a new VAT tax that will burden the entire nation with a tax on consumption in addition to the tax on income and capital gains. We need to instead insist on a reduction of the federal budget, a shrinking of the federal bureaucracy, and a return to spending sanity.