IBJOpinion

MARCUS: Debt and taxes are not the devil's doing

Morton Marcus
February 26, 2011
Back to TopCommentsE-mailPrintBookmark and Share
Morton Marcus

This national debt business is being overplayed. Critics characterize the debt as a giant burden, our most important national issue. Borrowing for the future, however, makes good sense when the debt contributes to economic growth.

The hitch is understanding the role debt plays in making the economy grow. Debt permits families to invest in housing, businesses in machinery, and governments in education, the environment, transportation and communications. These functions enable economic development and growth. Contrast this with credit card debt. People buy today to enjoy today things and experiences, knowing they will consume somewhat less in the future as they pay back what they borrowed plus interest on that debt.  

As “economic moralists,” you and I condemn people for not saving before buying. We say many people go into debt spending too much on trivial and unnecessary things. Credit card users would say we seek to constrain their economic freedom. They would deny that their purchases are trivial or unnecessary.

Consumer and business debt is different from government debt. Legislators choose to borrow for today, believing their programs will benefit us and our children when, as citizens of the future, we will pay back the debt. However, the decision to borrow is often made to avoid raising taxes.

Americans believed, rightly or wrongly, that fighting in Iraq and Afghanistan without raising taxes benefited the future of our country. Americans believed helping those who lost their homes and jobs in the recent recession, without raising taxes on the wealthiest and most secure members of society, would help the future of the country.  

The big question that no one answers remains: “Will higher taxes lead to a stronger economy?” Most people are so brainwashed they cannot conceive of beneficial effects of higher taxes. When we borrow to spend on health care for children, the future benefits. Borrowing to spend on health care for the elderly generates few future benefits. This does not mean we ignore the elderly. That’s why Medicare, unemployment compensation and other compassionate programs must be placed in a trust fund. Otherwise, today’s practical imperatives might overwhelm our ongoing moral concerns.

Higher taxes today have the moral advantage of accepting responsibility for today’s decisions. We didn’t do that for our current Middle-Eastern wars. Higher taxes on the wealthy have the beneficial effect of redistributing income to those who are less productive because they are poor.

Some observers believe the wealthier members of our society are more creative, productive, innovative and, hence, more valuable than the less-productive poor. Many who are poor, however, are incapacitated by their poverty. Innovation, creativity, even productivity are attributes that co-exist with a reasonable measure of economic security. Hunger and desperation rarely contribute to achievement.

The significant issue persists: How do we help the economy grow? Debt becomes insignificant in a healthy, growing economy. Debt for the right purposes helps the economy grow. Higher taxes on everyone today are also fine if they result in economic growth. Income redistribution through higher taxes on the wealthy also can contribute to economic growth and certainly can be used for our compassionate social goals.

Part of the debt paranoia is that a minor portion of the federal debt is held by people or governments abroad. Nonetheless, nearly 70 percent of the federal debt is owned by U.S. agencies, mutual funds, financial institutions and ordinary citizens. When we repay the principal amount owed and the corresponding interest, we are paying ourselves. The money initially used for investment goes back into circulation. It is neither a loss to the nation nor dead weight on the economy.

It would help if the anti-debt and anti-tax folks had a better understanding of how the world works.•

__________

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.
 

ADVERTISEMENT

  • Economic Arrogance
    Mr. Marcus,

    The first and last sentence of your shallow missive summarize the height of arrogance and hubris that I have come to expect from the "economic experts" of our educational system. I'm sure you have considered the intellectual and economic acumen of those who read the IBJ. Are you teaching this drivel to students? Have you ever run a business? Do you really believe that tax payers should buy the Ã?¢ââ??¬Ã?â??moral responsibilityÃ?¢ââ??¬ï¿½ argument for taxation and the petty lessons of Ã?¢ââ??¬Ã?â??good debtÃ?¢ââ??¬ï¿½. Do you honestly believe your mundane economic lesson applies in todayÃ?¢ââ??‰â??¢s broken Keynesian model. Instead, demonstrate your knowledge of reality. Demonstrate why feeding a broken, corrupted social net will not create the benefits of your lessons. Demonstrate your understanding of the complete ineptitude of our elected representatives and why they donÃ?¢ââ??‰â??¢t understand how to use debt to produce anything but more debt. Demonstrate to your readers why they should feel compelled to pay higher taxes in the name of compassion when they know it will NEVER happen. Demonstrate to us why you cant pay debt with debt and achieve anything but bankruptcy. Perhaps it is you, Mr. Marcus, who needs a better understanding of how the world works.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I could be wrong, but I don't think Butler views the new dorm as mere replacements for Schwitzer and or Ross.

  2. An increase of only 5% is awesome compared to what most consumers face or used to face before passage of the ACA. Imagine if the Medicaid program had been expanded to the 400k Hoosiers that would be eligible, the savings would have been substantial to the state and other policy holders. The GOP predictions of plan death spirals, astronomical premium hikes and shortages of care are all bunk. Hopefully voters are paying attention. The Affordable Care Act (a.k.a Obamacare), where fully implemented, has dramatically reduced the number of uninsured and helped contained the growth in healthcare costs.

  3. So much for competition lowering costs.

  4. As I understand the proposal, Keystone would take on the debt, not the city/CRC. So the $104K would not be used to service the $3.8M bond. Keystone would do that with its share.

  5. Adam C, if anything in Carmel is "packed in like sardines", you'll have to show me where you shop for groceries. Based on 2014 population estimates, Carmel has around 85,000 people spread across about 48 square miles, which puts its density at well below 1800 persons/sq mi, which is well below Indianapolis (already a very low-density city). Noblesville is minimally less dense than Carmel as well. The initiatives over the last few years have taken what was previously a provincial crossroads with no real identity beyond lack of poverty (and the predictably above-average school system) and turned it into a place with a discernible look, feel, and a center. Seriously, if you think Carmel is crowded, couldn't you opt to live in the remaining 95% of Indiana that still has an ultra-low density development pattern? Moreover, if you see Carmel as "over-saturated" have you ever been to Chicago--or just about any city outside of Indiana?

ADVERTISEMENT