Too Big to Bail

Just a quick, if obvious thought. I was watching a show on the history channel about US presidents. They showed the famous clip from George Bush, Sr.’s campaign promise “read my lips. No new taxes!” Fast-forward a few years and taxes increased. The Law of Economics demanded that taxes be increased. It’s very simple: there is no such thing as the public sector. Any money that the government “has” or “spends” comes from the private sector. It is like a balance sheet. Whatever the government spends must come at the expense of funds from the private sphere. When the government runs massive deficits, taxes go up. We can try all we we want to try to maintain a fantasy reality in which the law of economics does not apply, but in the end the law will prevail. The same situation is going on now. Obama promised to be modest with taxes, but as a recent opinion piece in the WSJ noted, the only thing businesses and households see in the future is tax increases. You can’t have it both ways. The money has to come from somewhere. Any expenditure on the part of the government must result in a decrease in the resources of the people. For a much better and deeper analysis of this problem, read Henry Hazlitt’s “Economics in One Lesson.” You should read it anyways if you haven’t because it’s a must-read for anyone who wants to understand the repetitive cycles of government folly. You can read it online here: http://jim.com/econ/

Related to this: Ottawa’s deficit problems.  http://www.cbc.ca/money/story/2010/01/25/dale-orr-structural-deficits.html