Fiscal Illusion and Entitlements
As the State of the Union address and subsequent pronouncements have made clear, American politics is in the firm grip of fiscal illusion.
One example is President Biden’s bragging that “In the last two years, my administration has cut the deficit by more than $1.7 trillion—the largest deficit reduction in American history,” which implied that we should only look at a short run effect which had little, if anything, to do with the policies he adopted, in evaluating his fiscal policy.
However, he did not mention that the CBO estimates that the average yearly federal deficit over the next decade will be $1.6 trillion (under current policies, not including any expansions that have not yet been enacted), which implies his current policies continue to massively rip off future generations.
Understanding such issues in terms of fiscal illusion was a major contribution of Nobel Prize-winning economist James Buchanan, who died just over a decade ago. As Romina Boccia described the issue:
Fiscal illusion arises when the true costs of public policies are obscured or hidden from view, leading individuals to underestimate the policies’ impact. Government programs appear less costly to taxpayers than they are because the current generation bears only part of the burden. Deficit-financing transfers some of the burden to future generation in the form of government debt obligations. This fiscal illusion leads current taxpayers to demand more government than they otherwise would and harms future taxpayers in the process.
As that description reveals, the most common example of fiscal illusion, for the few that ever talk about it (particularly rare among those inside the Washington beltway), is federal deficit financing. It increases the national debt, forcing some of the price tag onto future Americans, a price tag tha
Article from Mises Wire
