Why the Government Must Tax Instead of Just Printing Money
If the government, instead of taxing us or borrowing money to pay its bills,
just printed money and used that instead, what would happen? Well, for one
thing, the increase in the money supply would cause inflation, which would
mean that everybody’s money would be worth less. But wouldn’t that just be the
equivalent of a relatively frictionless, efficient, and difficult-to-evade
flat-tax on cash deposits and income? Why doesn’t the government use such a
method to fund itself?
Steve Saville suggests that part of the reason is that in order for such a scheme
to work, the people the government needs to pay must continue to believe that
legal tender is valuable. One way of doing this is to insist that everyone use
legal tender to pay their tax bills. This creates a more-or-less universal
demand for the currency (since everyone needs some to pay their taxes), which
gives it value. So the government cannot wholly rely on “just printing more
money” to pay its bills, but must supplement this with widespread demands for
the money it prints.
Interesting argument; I wish I was more economically literate and could wrap
my mind around it a little better. I know that the powers that be manipulate
the money supply and the value of currency for their benefit, but I have a
hard time nailing down just what this means quantitatively. For instance, if
the money supply were not being manipulated in this way, how much would the
government have to beg, borrow, or steal to make up the difference?
“Debra” of The
Claire Files writes that as a libertarian critic of government, she
got used to being called a right-winger back in the Clinton years, and she’s
getting used to being called a lefty today. And sure enough, when the lefties
were playing Clinton apologists, she spent more time with the right-wing
critics, and nowadays she’s spending more time with folks on the left, even
though she holds “the same convictions as [she] had in the Clinton years.”
Of her new strange bedfellows, she says:
The biggest thing about the Left: they seem to be more willing to make
personal sacrifices for their principles than the Right is. Whether it’s
paying a premium for “fair trade” coffee, refusing to eat animal products, or
bicycling to help the environment, they do instead of just talking
Over the last several years, I’ve watched libertaria swing leftward, revolted
by the Dubya Squad and the Republican establishment. Wouldn’t it be nice if in
the ensuing cross-pollenation the liberals got a little more skepticism about
government and the libertarians got a little more serious about putting their
money where their mouths are?
One of my favorite liberals in blog land is Matthew Yglesias. He has
answer the comfortable idiot-“pragmatists” who want to keep plodding into
the Big Muddy,
and a pocket calculator
that can say a thing or two about how much that’s gonna cost:
By , a Congressional Research
inquiry concluded that… before it ends, the war will likely cost somewhat
more than the $549 billion spent (adjusted for inflation) in the much more
lethal Vietnam War. But even this figure will likely prove to be off by
hundreds of billions of dollars because it accounts only for funds directly
appropriated for war fighting. As Linda Bilmes, a leading Harvard budgetary
expert, and Nobel Prize-winning economist Joseph Stiglitz point out in their
paper, “The Economic Costs of
the Iraq War,” the spending captured by the
CRS, even in strict budgetary terms, is “only the tip of a very deep iceberg.”
Wartime appropriations do not, for example, include the cost of disability
payments to veterans wounded in the war, payments that will continue
throughout their life spans. Nor do they cover the costs of medical treatment
for those seriously injured in the war, or even such basic war-related costs
as the replacement of equipment and munitions expended in the conflict or the
need to transport soldiers back to their home bases when they rotate out of
country. The war has also substantially increased the military’s overall
recruiting costs, reflected in bigger bonuses and additional recruiters.
What’s more, by combining the war with aggressive tax cutting, the
administration has ensured that the operation is paid for entirely by
borrowing money on which interest will need to be paid. The shocking truth,
according to Bilmes and Stiglitz, is that if one applies the Congressional
Budget Office’s basic assumptions about the duration of the conflict (“a
small but continuous presence”), it will cost nearly a staggering $1.27
trillion dollars before all is said and done.
The number is so high as to defy human comprehension. All the numbers ending
in “-illion” sound the same. But a trillion is what you get if you spend a
million dollars a day … for a million days. That’s 2,737 years — a
cool mil a day, every day, in other words, until the Year of Our Lord 4743.
Or, working backward, from the time when Homer wrote the
Iliad up to now. The $270 billion in rounding error
is worth another 750 years at the million-a-day rate. That takes us up to the
year 5493 — or back to when Moses fled Egypt.
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