Hans Sennholz (1922–2007) was a professor of economics and a student of Ludwig von Mises while at NYU. He was an intrepid critic of government deficits:
If we cannot return to fiscal integrity because the public prefers prodigality over balanced budgets, we cannot escape paying the price, which is ever lower incomes and standards of living for all. The pains of economic stagnation and decline which are plaguing us today are likely to intensify and multiply in the coming years. The social and racial conflict, which springs from the redistribution ideology, may deepen as economic output is shrinking and transfer “entitlements” cause budget deficits to soar. The U.S. dollar, which has become a mere corollary of government finance, is unlikely to survive the soaring deficits.
He explained how government deficits grow:
When the public demand for government services and benefits grows beyond the ability of business and wealthy taxpayers to pay, budgetary deficits become unavoidable. The popularity of redistribution by political force tends to grow with every dollar of “free” service rendered. The clamor finally becomes so intense that, in order to be heard, every new call is presented as an “emergency” that must be met immediately before all others. Redistributive government then rushes from one emergency to another, trying to meet the most noisy and politically potent demands.
On the subject of debt he wrote,
[The] man who lives above his present circumstances is in great danger of soon living much beneath them. The same is true with a group of people called “society.” To live beyond its means is to invite poverty and deprivation. Deficit spending consumes wealth, engages in mass deceit about economic reality, sets a poor example to others, makes people dependent and subservient, causes uncertainty and instability, and breeds social conflict and strife. It may even weaken the political institutions of a free society.
He argued that the capital consumed by government would have been better spent in private hands:
It is difficult to estimate the number of factories and stores that were not built, the tools and dies that were not cast, the jobs not created, the wages not paid, the food, clothing, and shelter not produced on account of this massive consumption of capital. The coming generation of Americans and countless others to come will be poorer by far as a result of our deficit spending.
Of course, the beneficiaries of the redistribution process enjoy every moment of it. With present-oriented people, today’s enjoyment is always more pleasurable than saving for tomorrow. In their ignorance, they may applaud the very favors and handouts that are destroying their jobs and the wages they could have earned.
Mr. Sennholz explained the danger of bubbles:
Many failed to recognize the gradual development of financial bubbles especially in equity markets and real estate. Bubbles, which ultimately must deflate and come to naught, are difficult to spot because they closely resemble real economic expansion. Actually, they are visible symptoms of maladjustments caused by wanton money and credit creation and false interest rates. They enjoy the loud support and confirmation by the monetary authorities blowing the bubbles and by politicians who love the booms.
Sennholz made no bones about the final outcome: “The ultimate destination of the present road of political fiat is hyperinflation with all its ominous economic, social, and political consequences.”
This article was originally published in the March 2016 edition of Future of Freedom.