[This article is reposted from Diego Lucero’s blog “How A Mormon Thinks“]
Directly below, I have typed the full transcript for the Youtube video called, “How Should Governments Deal With Debt?”, in which Dr. Stephen Davies explains the different possible approaches that governments can take to deal with the debt crises that happen around the world. I have also embedded the video at the bottom of this post.
In my opinion, the below is a strong, simple, and succinct argument for increasing personal liberties and for decreasing government spending.
“Nations that spend too much face very difficult choices and options. One is to actually return to the paths of virtue and bring the public spending under control—through a combination typically, of raising taxes and cutting spending. This can be done, but it can often take very a long time—but it is certainly better than the alternatives.
“The other two alternatives are: first of all, for the government to repudiate its debt. In some ways, this is the least painful, but it does mean that nobody is going to lend money to that country except at prohibitively high interest rates. This in itself is not good, not in the least, because it raises the general level of interest rates in that economy—which has all kinds of negative effects on economic activity.
“The more common solution unfortunately, is for the government to resort to inflation. And to inflate away the value of the debt, while depreciating the currency. There are already alarming signs that this is what the American administration is thinking of doing. In the long run also, totally dysfunctional public finances are associated with dysfunctional politics and dysfunctional government, and historically they have been a major cause of serious political unrest and upheaval—even revolutions, as in the French case, for example.
“Increasing taxes to get out of debt is better than the alternative route of causing inflation which is in fact, in this sense, just like another tax. However it is ultimately undesirable—simply and strait-forwardly—for two reasons:
“The first is that taxes inhibit or distort economic activity, as any economist will tell you. So to the extent that you raise taxes, you are going to slow down or reduce economic growth and the increase in the human well-being.
“The other thing is, and it’s a principled one, that a rise in taxation is the increase in the proportion of income that is decided and allocated by the political process, rather than by personal and individual choice. And that is a bad thing to do, on civil liberties and independence grounds. So therefore, the best way of dealing with the kind of fiscal crisis that many countries face today—not least, The United States—is to cut spending, and to reduce the number of things that the government does.”
And here is the video that I pulled it from:
Dr. Stephen Davies is education director at the Institute of Economic Affairs in London and program officer at the Institute for Humane Studies. Previously, Dr. Davies was a senior lecturer in the Department of History and Economic History at Manchester Metropolitan University in Manchester, England. He has also been a visiting scholar at the Social Philosophy and Policy Center at Bowling Green State University, Ohio. A historian, he graduated from St. Andrews University in Scotland in 1976 and gained his PhD from the same institution in 1984. He has authored several books, including Empiricism and History, and was co-editor with Nigel Ashford of The Dictionary of Conservative and Libertarian Thought.