There is no such thing as a free deficit

Written on April 11, 2011 by Diego Sánchez de la Cruz in Americas, Political Economy

By Diego Sánchez de la Cruz, Master in International Relations Candidate at IE School of Arts & Humanities.

Over the last ten years, federal spending in the US has grown at an annual average of $170 billion dollars. Obviously, there is no way that this tendency could remain unchanged, and the recent debate among Republicans and Democrats shows that Washington has finally learned a lesson about fiscal sanity.

 Milton Friedman used to say that “there is no such a thing as a free lunch”. We may now say that there is no such thing as a free deficit, either.

 Obviously, this lesson was not taken very seriously by many politicians who have avoided time and time again a serious debate about spending cuts. Suddenly, Congressman Ron Paul seems to be the only man in Washington who has gotten this right for years now. His belief in lower federal spending and smaller government has anticipated a debate that is now more alive than ever before.

 President Obama has announced an agreement between Democrats and Republicans just in time to avoid a government shutdown, but the debt problem will remain there. After all, how can an agreement to cut less than $40 billion dollars mean much next to a deficit of over $1,645 billion dollars?

 The Economist has praised Congressman Paul Ryan, who chairs the House Budget Committee, for his “brave” budget proposal, which did tackle many of the problems with the current budget. However, the Washington establishment can easily swallow his effort and keep writing checks that may win votes, but ultimately condemn the nation to a public debt crisis similar to the one that many European countries are now facing.



dem April 12, 2011 - 8:15 pm

So, is that what studenst are thaught at IE? Siding with conservative perspectives without being able to support these arguements with a logical reasoning and forgetting about demagoguery? I´m no longer sure if devoting all my savings to study at IE would be the right choice…

Mario April 12, 2011 - 8:15 pm

I’m sorry to disagree with this reasoning. The debt has reached that level because of the military expenditure in two wars and now the cut will be in the social programs. Namely in those programs aimed at helping the poorer american to reach a certain quality of life.

But thanks for the video. It’s awesome and I’ll take some notes from it.

Lucía April 12, 2011 - 8:33 pm

When going through the numbers of the US budget, it is obvious that programs such as Medicare and Medicaid have grown too large… The following link shows this in a very clear way


Additionally, large military spending has made things much worse. A reform will be very necessary, and it is important that both parties work together to do so.

LIG April 13, 2011 - 8:28 pm

Thanks for sharing the video, I think it is fundamental for the US to address its fiscal health as soon as possible. Excessive bureaucracy, bailouts and subsidies, programs like SS, MA and MC, and large military spending, have really hurt the country’s public finances.

Agustina April 13, 2011 - 10:38 pm

The problems with the debt in Europe could soon jump the Atlantic ocean and develop into a devastating fiscal crisis. It is important to keep in mind that both Republicans and Democrats are responsible for this situation, but it is positive that they have worked together in order to start changing this worrying trend.

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