The Ethics of Deficits

I like to think that I’ve made a somewhat serious effort over the years to understand the impact of budget deficits on economic growth and I must admit that I’m stymied. Both the centrist and populist factions have reasonable-sounding arguments on the table, and it seems to turn on things that are beyond my technical capabilities. The fact that the great bulk of professional economists seem to me to be on the centrist side carries some weight, but it’s far from decisive and there are ample credentialed economists on the populist side as well.

I am, however, a moderately trained moral philosopher and can tell you that the objection that deficits “place an unfair financial burden on future generations” doesn’t make a ton of sense. Think about an individual taking out a large loan for some reason or other — a mortgage to buy a house, say. This may be a prudent investment, or it may be a foolish one. Whether or not the loan amounts to an “unfair financial burden” on future versions of yourself isn’t an additional issue on top of the issue of how well your investment performs.

It’s similar with deficits. If moderate levels of deficit spending allow us to finance growth-enhancing public sector investments, then there’s no burden at all being placed on future generations. Conversely, if moderate levels of deficit spending are “crowding out” enough private investment to counteract the beneficial impact of additional public spending then this is a sufficient reason not to do it all on its own. People like to think there’s an independent, ethical issue here because since it wouldn’t hinge on technical macroeconomic issues you can deploy the ethical issue in the form of effective political rhetoric or punditry aimed at a broad audience, but the technical question really does need to be answered. If Cheney was right and deficits don’t matter for growth, then they also don’t matter as a question of political morality.