In his book Time and Money, (a book on “Austiran macroecomics”) economist Roger Garrison, takes the Von Mises approach to analyzing economic issues, and argues that deficits are more damaging to the economy than taxes because of the uncertainty they create which distorts the process of economic planning:

In effect, the government is putting the private sector on notice: “We’re taking $1.25 trillion in accordance with the established tax codes. And we’re taking another $250 billion as well, but we’re not saying just how, just when, or just whose.” Taxes, complex and distasteful as they are to both the business community and the consuming public, are a known quantity. We make plans around them, we pay our accountants to minimize them, and we brace ourselves for them. But the deficit is a different story…

…No matter how certain a large deficit may be, there is no effective way for either business people or the rest of us to minimize it, plan around it, or hedge against it. It could hit us with high interest rates [if financed out of domestic savings], with inflation [if monetized by the Fed], with weak export markets [if financed by foreigners], with increased taxes, or with some combination…

…But until the government’s fiscal strategy takes some definite form, the $250 billion of intent to appropriate funds in some yet-to-be-specified way looms large as a cloud of uncertainty over the private sector.”

Hat Tip: Rob Tarr.

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