Of Course Deficits Matter. But...

My man Kevin D. Williamson  has a long thumb-sucker on NRO about that hardy perennial, "Yes, Deficits Still Matter." He writes  that

Deficits matter because, ultimately, debts have to be paid, but also because the reality is that sometimes debts go bad, and the fact and fear of that possibility can lead to chaos.

And then goes off into a long peroration about risks and interest rates on consumer loans.

Actually, Kevin is wrong. At the sovereign government level, debts do not have to be paid.

On my view, the talk about bad debt and risks misses the point.

Now, the basic political situation in the United States is that Democrats are always proposing more spending. That's because Democratic voters are either lower-income people that need free stuff or are professional-class people that want government administrative jobs. Republicans are always proposing tax cuts, because Republican voters in general just don't like paying taxes.

The reverse of this situation is that Democrats are usually pretty careful about raising taxes; they like to say that they only want "to make the rich pay their fair share." Republicans are very careful about cutting spending because they know that hell hath no fury like a beneficiary scorned.

So national politics swirls around the need for Democrats to deliver for their voters by increasing spending, and the need for Republicans to deliver for their voters by reducing taxes.

Everybody knows that government debt is a problem, but not yet. So each side nudges the agenda as far in their direction as they dare. Everybody hopes that the big collapse doesn't happen on their watch.

But surely, sooner or later we are going to have to Do Something about the deficit.

Yes, but we won't do anything until we have a crisis. That's the way of government, and that is why it is foolish to have any government programs. You can never fix things now, because special interests and "the children," not until there is a crisis and the whole world demands that we Do Something.

For instance, take the case of the government policy that forced banks to loan money for home mortgages to borrowers with bad credit. Until there was a crisis and the whole credit system nearly collapsed in 2008, nobody except a few crazies even thought there was a problem. If you didn't believe in granting mortgages to people with bad credit you were a racist!

Yes, but what about Venezuela? Don't we end up like Venezuela if we don't Do Something about the deficit? Probably not. And here is why.

• Venezuela is an oil state, meaning that the government uses oil revenue to hand out free stuff. That's great when oil prices are high. But if the government assumes that the good times will roll forever, then it is going to run out of money when oil prices are low. Then the only alternatives are spending cuts and/or inflation.
• Venezuela's leaders are left-wing nut-cases, which means that they don't have the basic smarts to keep out of trouble.
• The US is the center of the world's economy, at least for now, and that means that everyone is willing to buy US debt, from domestic widows and orphans, to government employee pension funds, to foreign central banks.
• Whereas Venezuela has bled the country dry trying to service its debts, the US can probably just give its creditors a haircut if things get hairy. That means reducing the interest rate on existing bonds, which the US did in the 1930s. And there are a bunch of other possibilities. Of course the US has already lowered short-term interest rates almost to zero, which really hurts mom-and-pop savers. There is nothing like being the world hegemon.

When we do get to the point that we need to Do Something about spending, I expect that the government will do stuff like applying a means test to Social Security and Medicare. It already does, in a way, by partially taxing Social Security benefits, and by adjusting the Medicare premium based on last year's income. The fact is that the government and its bribed apologists have gotten pretty good at finding ways to fleece the sheep without the sheep really knowing what is going on. The whole point of Obamacare was to increase subsidies for Democratic voters by jiggling insurance premiums and avoiding the necessity of paying the subsidies out of the federal budget.

Of course, all this may not be enough. And there is always the possibility that the president of the day will be even more clueless than President Obama.

The basic fact of life is that there is only one government program that really matters. It is the government's program to sell its debt. As long as people are buying the debt, everything is copacetic. But if the day ever comes when the government has trouble selling its debt, then it is Katy bar the door.

But let us look at the bright side, and imagine a future of bright sunlit uplands. Some day we may enact the Chantrill Program for the 21st Century. On this program Social Security and Medicare would be privatized, maybe in some rigid program that forces people to save for their retirement in private accounts: hello Fidelity and Vanguard. Government education would be abolished, and replaced by on-line learning and associations of mothers getting together to teach the kiddies. Education and healthcare for the poor would be funded by rich people out of their charitable foundations and by health delivery organizations -- doctors, nurses, hospitals -- giving free care to deserving people that can't afford health care through no fault of their own. Really, the only expenditures at the federal level would be for defense, and the only debt issued would be for wars.

'Cos it's a funny thing. The one thing that government can do is shut down defense spending after a war. You could look it up.