Jerry Bowyer

Let’s do a quick refresher on deficits and debt, the differences and the similarities. Deficits are temporary shortfalls in revenues relative to expenditures. Typically, they’re measured in annual increments. They’re an element of budgets. They’re associated with current operations. In accounting terms they’re similar to Profit and Loss Statements.

National debt, on the other hand, is the accumulated effect of operations during the whole life of the entity. In accounting terms it’s more of a balance sheet entity. Frequently in public discussions the terms ‘deficit’ and ‘debt’ or ‘national debt’ are used interchangeably. This is a serious mistake. They’re very different things which represent very different dangers. Failing to make this basic distinction helped lead to serious errors in outlook during the late 1980s, during which many observers who generally share sound presuppositions about the nature of the economy were given to histrionic predictions of national default, debt monetization, and hyperinflation. These predictions led to seriously ill-timed recommendations to overweight gold in investment portfolios.

On the left side of the spectrum, such focus on deficits, as opposed to national debt, led to a wave of hysteria in the early 1990s which helped create the political pressure to which President George H.W. Bush succumbed when he reneged on his “read my lips” pledge not to raise taxes. The fact of the matter is that, though deficits were high at the time, the national debt was roughly 50% of GDP: a concern, but hardly an emergency. The proper response would have been a focus on long-term spending control and pro-growth policies, not a panic-based, growth-discouraging tax hike.

Debt at the levels which we see now is far more dangerous than anything we saw in the 1980s. They’re at levels generally only seen during wars of existential import, such as our Civil War and World War II, or Britain’s Napoleonic Wars. At such times in history capital markets tolerated high levels of borrowing, at least for the victorious side. Such wars defeated long-time enemies, leading to valuable ‘peace dividends’ afterward. Such wars had very limited time spans, after which there was typically some sort of ‘return to normalcy’ (the phrase used to describe America’s economy after WWI).

Our current situation is not as sanguine. Though the Iraq War has in some sense come to a close, and the Afghan War is scheduled to end, it’s hardly clear that the results have been victories which leave enemies decisively vanquished. In fact, ideological movements sympathetic to the causes we defeated seem to be gaining, rather than losing, influence through the ‘Arab Spring’.

Furthermore, current spending and borrowing levels are more the result of domestic campaigns rather than foreign ones: to subsidies for solar and other green energy proposals, to structurally higher levels of spending on higher education, health care, and social services, as well as on Keynesian attempts to boost ‘aggregate demand’ (whatever that is). History has shown that wars on nebulous enemies like poverty or stagnation do not end with victory, but with capitulation, because the means which government employs for fighting such wars actually create more of the thing the government is fighting against. Poverty never surrenders; stagnation never surrenders; in fact, these things are strengthened by the methods governments use to oppose them.

In short, we will lose our current war on whatever (Stagnation? Inequality? Injustice? Despair?) because our government is really waging a war on reality, and reality always wins.


Mr. Bowyer is the author of "The Free Market Capitalists Survival Guide," published by HarperCollins, and a columnist for

Jerry Bowyer

Jerry Bowyer is a radio and television talk show host.


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