America’s Great Depression Quote of the Week: How to Reduce Deficits

From the Introduction to the Fourth Edition (1982) of America’s Great Depression

While deficits are often inflationary and always pernicious, curing them by raising taxes is equivalent to curing an illness by shooting the patient. In the first place, politically higher taxes will simply give the government more money to spend, so that expenditures and therefore deficits are likely to rise still further. Cutting taxes, on the other hand, puts great political pressure on Congress and the administration to follow suit by cutting spending.



 Deficits, then, should be eliminated, but only by cutting government spending. If taxes and government spending are both slashed, then the salutary result will be to lower the parasitic burden of government taxes and spending upon the productive activities of the private sector.

No “balance” of revenue enhancements combined with reductions in the rate of growth of spending, no ten year plan to bring budget balance in 10 years based on only mild reductions in the rate of spending increases and expected revenue enhnacements for higher growth rates. No revenue neutral tax “reform”. Real cuts in spending made believable by cuts in tax rates actually intended to shrink, not grow government revenues.  Government austerity or economy is the path to private sector prosperity.



  1. Four things that happened in American history guaranteed the onslaught of collectivism,fiscal imbalance and eventual national bankruptcy. These 4 things were Central Banking using Fiat currency backed by Sovereign Debt,Income Taxation,the Welfare State and finally the ability to have standing armies and perpetual war. All 4 of these things were warned about by the Founding Fathers who drafted the original Constitution. With the backing politically of a voting majority,the politicians have given America the government it deserves. Once the socialist genie was released from its bottle,short of a revolution, the chances of fiscal sanity and righting the ship of state was made almost impossible. Austrian economists understand this situation but cannot do anything but hope to educate enough of the voting population to effect political change. Judging by the amount of voters who are riding on the government gravy train this is a near impossible task. The only thing that can be done is to stand back,let the laws of economics do their work and when the whole economic edifice collapses make sure that,as an individual,you and your family are safe and protected from the ravages of an economic calamity.

  2. In today’s world of deficit spending cutting taxes does not “starve the beast.” When we were on the gold standard and our budget deficit was not ballooning it might have been good advice to cut taxes to force the government to lower spending. That is no longer true. Government increases spending and then pays for it through borrowing especially from the FED (money creation).

    Taxes should be cut but in order to allow the productive economy to use the funds to produce products not to starve government – that will not happen.

    I think we all know that the right formula is to implement policies to create sound money, neither inflationary nor deflationary, then return government programs back over to the private sector where the price system can signal efficiency, and then lower taxes to allow productive businesses to keep the fruits of their labor so that they can generate more production.

    Austerity for austerity’s sake is foolish because it creates shortages in services that the government has confiscated. We must first rebuild the private sector to pick up those services that we will ultimately cut from government budgets, but it must be done in order or we invite social unrest.

Leave a Reply