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Milton Friedman on Government spending and deficits

I do not believe the debt overhang is the real problem. I believe the real problem is government spending. Government debt is a problem in the long run. Obviously, if the government continues to run deficits for a long period of time, it will sooner or later have to monetize them. So I do not deny that is a real problem. However, it is a mistake to concentrate on the debt as such instead of concentrating on why the debt was created, which is by excessive government spending.

Context. A spoken answer in the question-and-answer session printed with the essay, replying to a question about how serious the 1980s debt overhang was. The sentences immediately following are the “deficit is a form of taxation” passage.

Why Government Is the Problem
Journal article, 1993, Hoover Institution Press, Essays in Public Policy no. 39, p. 16
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Cite this passage

Milton Friedman, “Why Government Is the Problem” (Hoover Institution Press, Essays in Public Policy no. 39, 1993), p. 16. https://miltonfriedman.org/quotes/debt-overhang-not-real-problem-spending-is-1993

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He also said

  1. To preserve the fiction that Social Security is insurance, however, federal government interest-bearing bonds of a corresponding amount have been deposited in a so-called trust fund. That is, one branch of the government, the Treasury, has given an interest-bearing IOU to another branch, the Social Security Administration. Each year thereafter, the Treasury gives the Social Security Administration additional IOUs to cover the interest due. The only way that the Treasury can redeem its debt to the Social Security Administration is to borrow the money from the public, run a surplus in its other activities, or have the Federal Reserve print the money—the same alternatives that would be open to it to pay Social Security benefits if there were no trust fund. But the accounting sleight of hand of a bogus trust fund is counted on to conceal this fact from a gullible public.

    Context. From an article on President Clinton’s proposal to invest part of the Social Security funds in the stock market. Just before, he explains that Congress has collected more in Social Security taxes than current benefits required, though less than the future liability it was incurring, and that “the excess revenue has been spent in the ordinary course of government business.”

    Social Security Socialism
    Column, 1999, The Wall Street Journal, January 26, 1999; reprinted with minor editorial changes in Hoover Digest 1999 No. 2
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  2. But it’s not politically feasible. The pressures on Congress mean that it will be spent. Look at what’s been happening to the surplus so far. Congress has been getting rid of it as fast as it could—and under very difficult circumstances, because divided government up to now has meant that it’s been hard to get agreement on what to do. Even so, it has been able to put through a lot of government spending. History shows that over a long period of time government will spend whatever the tax system raises plus as much more as it can get away with. That’s why we’ve had universal deficits.

    Context. Asked about the federal budget surplus. Peter Robinson put it to him that he had said he would be open to paying down the debt if it were politically feasible.

    Friedman on the Surplus
    Interview, 2001, Interview by Peter Robinson for Uncommon Knowledge, January 17, 2001; adapted in Hoover Digest 2001 No. 2
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  3. However, it does have some good features. The deficit is the only thing that is keeping spending from going up still faster.

    Context. The sentences immediately after “What is called a deficit is a form of taxation,” in the same spoken answer. He is naming what he thought a deficit is good for, having just called it a very bad form of taxation.

    Why Government Is the Problem
    Journal article, 1993, Hoover Institution Press, Essays in Public Policy no. 39, pp. 16 to 17
    Checked against the sourceRead the original

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