Boudreaux on Public Debt

Apparently, in my absence, there has been some discussion about the ethics of public debt in the blogosphere. The major players seem to be Steven Landsburg and Paul Krugman. Both take the position that there is nothing particularly unethical about leaving huge government finance debts to future generations.

Don Boudreaux replies. His reply largely consists of an exposition on Buchanan's public debt ethics. It is a decent response to the core issue, but I feel it misses the most important point.

Mises' analysis of credit expansion teaches us not about having to pay the piper eventually, but rather about the severe market distortions that credit expansion causes. Government deficit spending is - make no mistake - an act of credit expansion. Credit expansion does - make no mistake - distort markets and sends society along a growth trajectory far lower than it would otherwise follow. This is the key point to the Austrian framework and the major moral of the Misesian story.

Government debt isn't unethical because future children have to pay it back instead of us. Government debt is unethical because it robs society of its most efficient use of scarce resources. It takes from us the satisfaction of our own most-urgent wants and presents us with piles upon piles of things we do not want, such as housing bubbles and war.

Today, rather than having a cure for diabetes or a machine that renders fossil fuels obsolete, we have war and social security. That we exist in a land of war and airport security instead of peace and economic plenty is the real curse of government debt.

That's why it's unethical.


  1. "Government deficit spending is - make no mistake - an act of credit expansion"

    Nonsense. If there is full crowding out, then no credit expansion has occurred at all.

    "Government debt is unethical because it robs society of its most efficient use of scarce resources."

    It is no different than taxation in this regard. (Which I don't regard as unethical, but I assume you do, but in any case, the effect on resource usage is not different.)

  2. That's a pretty big "if," Gene...

  3. "That's a pretty big 'if,' Gene..."

    That was just one example. I should have said, "for instance."

    But I gave you another example, which you simply ignored: In a system with no paper money, the issuance of government debt *never* represents a credit expansion. Yet you state it always does. So your claim is false.

  4. Gene, you're coming up with hypotheticals that don't reflect reality. I concede that in imaginary situations with radically different circumstances from what is observed in the real world, I might be wrong.

    But what I'm talking about is the real world. You can try to punch a hole in my argument with technicalities, but if you do so, you're just not seeing the forest from the trees.

    So sure, in a world without money substitutes, or in which ordinary people completely stop spending money any time the government engages in deficit finance, I might be wrong. But that's a far cry from "nonsense." You're being a little thick here.