Saturday, March 19, 2005

Against Balanced Budget Rules...

Democrats are chortling right now because the Paygo bill, which would require that tax cuts or spending increases be offset by either budget cuts or new revenues, failed in the Senate a few days ago.

And, given, there are people who want to choke the government out of existence by cutting taxes, increasing spending, and thus making government programs unaffordable.

And, granted, on the other side, there are people in congress who want to increase spending (especially for their states or regions) without having to raise taxes.

But, these "balanced budget" rules are still a bad idea and here's why...

Debt isn't always bad. It can be used constructively. For example, let's say you go into debt to build the interstate highway system. You've gone into debt, sure, but you've made an investment that will pay off big time in the future. I'd argue that wiring the entire country to broad band would, as with the highway example, be a project worthy of taking on debt for. To take it to a personal level, think about buying a home. You go into debt for that. But, generally, the benefits of property ownrship make it worthwhile in the long-term. Not only is the home likely to increase in value, but your earnings are likely to increase over the course of you paying off the debt that you took on to buy it, so, the sting of payments will even lessen over time.

Debt can be used wisely, is all I'm saying. Most of the time, individuals, and the government, don't use it wisely. But, they can. And, they should. Look at corporate America. Companies borrow money all of the time in order to finance big capital developments (like building a new factory) that will, over the term of the debt, create more profits than the debt costs. Debt is a tool. We shouldn't be supporting laws that take that tool out of the tool box. We should, rather, be demanding that our politicians spend debt money on investments that will pay greater returns than the cost of the debt incurred.

Debt isn't bad. The way we tend to use debt is.


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