Tyler Cowen writes in the New York Times that Americans are stuck in a fiscal illusion:
James M. Buchanan, a Nobel laureate in economics […] argued that deficit spending would evolve into a permanent disconnect between spending and revenue, precisely because it brings short-term gains. We end up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society. As we fail to make progress on entitlement reform with each passing year, Professor Buchanan’s essentially moral critique of deficit spending looks more prophetic.
We are fooling ourselves most of all. United States government debt in public hands is now more than $9 trillion, but most people still don’t realize what it will take to pay that off.
Here’s an example: Say that you have $20,000 in Treasury bills. You probably believe that you own $20,000 in wealth. This will encourage you to spend and come up with ambitious plans. Yet someone – quite possibly you – will be taxed in the future to pay off the government debt. The $20,000 may be needed in order to do that.
The illusion is this: A government bond represents both a current asset and a future liability, yet for most people, those future tax payments feel less concrete and less real than the dollars they’re holding in a money market account.
It sure seems like Dr. Cowen has hit the nail on the head when one reviews many recent polls in which Americans appear to suffer from schizophrenia. On the one hand the majority of Americans agree that government spending is too high and the national debt represents a problem that needs to be urgently addressed, while on the other hand, they are opposed to specific cuts, especially in the realm of entitlement spending, the largest part of the US budget.
If you are still on the fence as to how bad the debt problem really is, check out Carrie Lukas’s timely policy focus on government over-spending, which explains why:
Government over-spending and our massive national debt aren’t just problems we will leave to our children and grandchildren. They are hurting our economy today.