Rather, it’s a political/accounting one: “Politicians say this policy is optimal. If so, then they should not merely impress upon the public the policy’s benefits; they should also impress upon the public the policy’s costs.” While a politician may bask in the glow of a government program as soon as the program begins providing benefits, borrowing lets the politician spread out (capitalize) the program’s costs; in contrast, taxation corresponds more closely with a pay-as-you-go (expense) model of finance.

Neither model is good or bad in itself; arguably borrowing is an appropriate mechanism for matching the political benefits of certain projects with their political costs. But given the natural inclination to derive benefits now and defer payments until later, both politicians and MCI are prone to treat regular expenses as capital items – arguably deceiving the public and leading to long-term problems.

I sense Landsburg doesn’t agree with this analysis. Landsburg regards foregone consumption as a cost, and raising $1 trillion in new borrowing requires just as much foregone consumption as raising $1 trillion in new taxes. Yet people who pay taxes anticipate no return on their sacrifice beyond the government services provided; in contrast, people who lend do anticipate a return – and the cost of that return must be borne by an unsuspecting (or under-suspecting) public. Thus a system of pay-as-you-go taxation seems to provide a political impetus to curb spending that a system of borrowing does not.

Taxation creates a system that says, “I can eat whatever I want, but for each additional calorie I ingest I must go to the gym and work it off within 24 hours.” Borrowing creates a system that says, “I can eat whatever I want, but for each additional calorie I ingest I must go to the gym and work it off … oh, eventually.” While the difference between these incentive structures may be opaque to an economist, I suspect it’s clear to most of the rest of us.

But my point is that sleight of hand takes place right at the moment when he addresses the desire to reduce the deficit, as if the deficit were the source of any significant problem.

But since I don’t know that Obama embraces Landsburg’s view, I can’t fault Obama’s rhetoric for failing to reflect it.

If Obama had suggested that the root of our fiscal problems is the gap between government spending and contributions to the Democratic National Committee, I think we’d be entitled to fault his rhetoric on the grounds that the DNC budget has nothing to do with “getting our fiscal house in order”. Someone might say “Oh, but perhaps he really *believes* that the DNC budget is relevant here”. Maybe so, but it seems implausible.

In his speech at Carnegie-Mellon yesterday, the President lamented the growth of federal spending and proposed to attack the problem partly by letting the Bush tax cuts expire. Can you say non sequitur, boys and girls?

To be clear, here’s what Obama said:

But as we look ahead, we can’t lose sight of the urgent need to get our fiscal house in order. There are four key components to putting our budget on a sustainable path. Maintaining economic growth is number one. Health care reform is number two. The third component is the belt-tightening steps I’ve already outlined to reduce our deficit by $1 trillion…. [T]he fourth component in improving our fiscal health is the bipartisan Fiscal Commission that I’ve established that will provide a specific set of solutions by the fall to deal with our medium- and long-term deficit.

True, Obama was discussing the third point – belt-tightening – when he discussed letting the Bush-era tax cuts expire; it does seem like a non-sequitor viewed in that narrow context. But the speech clearly addressed the desire to reduce the deficit through both spending cuts and revenue increases. Within that larger context, the proposal to let the tax cuts expire seem entirely on point. Can you say quibbling, boys and girls?

Of course, I surmise Landsburg would regard my remarks as quibbling, too. I don’t really understand Landsburg to be offering critiques on Obama’s rhetoric. Rather, I understand Landsburg to be using Obama’s speech as a topical excuse to reiterate Landsburg’s view (as I understand it) that the economic consequences of government borrowing vs. taxing are trivial compared to the economic consequences of government spending. That’s a fine point of view. But since I don’t know that Obama embraces Landsburg’s view, I can’t fault Obama’s rhetoric for failing to reflect it.

My point exactly.

I’m not sure why this analogy is run only in one direction. The Federal government does not incinerate the tax revenue it collects – it spends that revenue on things. So while it is true that if I have $2 and the government takes $1 in taxes I have $1 less to spend, the government then spends that $1. So from a non-selfish position the amount of expenditure remains constant. SOMEONE is going to get that extra $1, either the McDonald’s restaurant I buy my coffee from or the McDonald’s restaurant that supplies coffee to a government meeting.

It seems that your objection to letting the tax cuts expire is based on some other reasoning and I don’t see how your analogy applies.

I’m sure this has come up before, knowing your love of models based reasoning, but when a model fails to reliably predict actual outcomes it is likely based on faulty logic or is too simple.

Like when your model that predicted a “terrible flood” based on the flow of water from a bathroom faucet (4GPM) and the approximate capacity of the tub (50 gallons?). Even though you had never witnessed such an event, nor heard anyone else recount such a calamity, You tell us that you allowed this belief to remain, unchallenged, untested, until well into your adulthood. I imagine it was your faith in such a simple model. One that in a lab would have been useful but in reality just kept you scared of a self imposed lie.

Indeed, though one might consider it sufficient to merely decrease the proportion of spending relative to the economy. However, it is not quite clear that raising taxes is a surefire way to grow an economy.