December 04, 2017
Robert Samuelson used his column today to say he doesn’t understand budget deficits. This is hardly a surprise to regular readers of his column. But, he bizarrely argues that because he is confused, everyone else is also.
Samuelson tells readers:
“The truth is that we don’t fully understand the effects of budget deficits on the business cycle.”
No, “we” do understand the effects of budget deficits. It really is pretty simple, deficits increase demand compared to a balanced budget or surplus. Of course, not all spending or taxes are equal. Direct spending on goods and services has more impact than transfer payments, and transfer payments have more impact on demand if they go to lower income people who will spend them than higher income people who save much of their income. The same is true of taxes.
Also, it is important to note that the budget only captures a portion of the government’s commitments of revenue. Government-granted patent and copyright monopolies can easily involve a commitment in excess of $1 trillion a year (4–6 percent of GDP) in payments for rents. These are effectively privately collected taxes.
Anyhow, it’s unfortunate that Samuelson is confused on this issue. It is even more unfortunate that the Post could not find an economic columnist who understands economics.
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