Tuesday, December 18, 2007

Let's replace Congress with Steve Conover

for the next two year term:
"How will you pay for it?" That's a tough question for anyone on the receiving end. It's a good bet we'll hear it from one side or the other on any given talk show featuring any politician talking about fiscal matters, especially within 18 months of a national election.

The person on the receiving end of that snappy question typically stutters like Porky Pig for a while, until the talk show host runs out of time and has to cut to a commercial. It's a great "gotcha" question. But there's a subtle fallacy embedded in it: the false premise that everything the government buys must be paid for right now with tax receipts or spending cuts, or else we shouldn't do it.

[QUESTIONS]

1. How did we "pay for" the Louisiana Purchase in 1803, without which we wouldn't be the United States of America today?

2. How did we "pay for" winning WW2, then rebuilding Europe?

[ANSWERS]

1. We borrowed money from foreigners for the Louisiana Territory, and subsequently serviced that debt via generations of economic-growth-driven tax receipts.

2. We borrowed money from ourselves to win WW2 and rebuild Europe, and subsequently serviced the debt via generations of economic-growth-driven tax receipts.


The point: Not everything needs to be "pay-go" because some things are good investments in the future—one of the best of those being war prevention (according to John Stuart Mill). Good investments eventually (by definition) pay for themselves, and then some. Borrowing money for good investments is sound financial practice; ask any banker. Statesmen of the past who stuck by their convictions against the odds (Jefferson, FDR, Reagan) knew that in their hearts.

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