vol. 55, no. 4 (April), 1989, pp.
edited by James M. Buchanan, Charles K. Rowley, and Robert D. Tollison
Oxford: Basil Blackwell, 1986, pp. x, 417
The editors of this volume, along with Gordon Tullock, Richard E. Wagner,
and nine other economists have addressed themselves to the problem of budgetary
deficits. The pattern of co-authorship, which links together many of the
twenty-one chapters, reflects the like-mindedness of the contributors.
As this volume developed
from its conception in 1984 to its first printing in 1987, the national
debt grew by more than $600,000,000,000. By the time this review appears
in print, the debt will have grown by another $300,000,000,000 or so. Yet,
according to its preface, Deficits is not intended as a topical
In many respects the book
is not topical. It provides no basis for identifying the particular consequences
of this year's deficit or of predicting next year's. It does not compare
Republicans and Democrats on their relative abilities to deal with the
severe fiscal imbalance. Nor does it suggest ways for the fiscal authority
to trim the deficit or suggest how the private sector might cope with the
fiscal authority's cumulative failures.
The contributors to this
volume are interested in the more cosmic issues. What constellation of
incentives and constraints (or lack of constraints) and what ideas or beliefs
gave rise to our current state of governmental affairs in which systemic
and chronic fiscal irresponsibility is the norm? Buchanan and Tullock 
provide the basis for identifying the relevant incentives and constraints;
Buchanan and Wagner  identify the relevant changes in the intellectual
climate that have strengthened the incentives and weakened the constraints.
The Calculus of Consent in the context of a Democracy in Deficit
sets the theme for this timely look at the problem of public indebtedness.
The book contains few implications
for policy in the narrow sense. Again, the focus is on the larger question:
How far back do we have to go before we can start all over? In brief, the
requirement of fiscal responsibility, which in an earlier era was a matter
of political necessity, must be imposed anew; the problem must be addressed
at the constitutional level.
The chapters are grouped
into four sections: Perspectives (2 chapters); The Impact of Ideas (8 chapters);
The Role of Institutions (8 chapters); and Towards Tomorrow (3 chapters).
The first section consists
of a brief overview by the editors followed by a political and economic
history by Gary M. Anderson. Regrettably, the historical reckoning of the
debt problem in these early chapters and elsewhere in the book makes use
of the Debt/GNP ratio, which according to Anderson, is the most useful
way of defining real debt. Although this conventional definition may be
useful in a Keynesian analysis for gauging the wealth effect of government
debt on spending propensities, it is not particularly illuminating in the
context of the issues raised in this book. To illustrate, one of the problems
with a high level of debt is that it biases government toward inflationary
policies. A falling Debt/GNP ratio, though, can mean either that the government
is becoming more responsible in its fiscal affairs or that its fiscal irresponsibility
is manifesting itself as inflation. In effect, the book demonstrates that
a healthy perspective on the deficit comes from a telling of the story
rather than from a reporting of such summary statistics.
According to John Maynard
Keynes, ideas are more powerful than is commonly understood. With one curious
exception, the contributors to the second group of chapters accept Keynes's
assessment. For advocates of functional finance, debt is not a problem
because we owe it to ourselves; for some exponents of New Classicism, debt
is not a problem because income earners save to meet future tax obligations.
The ideas spawned by Abba Lerner's sophism and, years later, by Robert
Barro's over-extension of the Ricardian Equivalence Theorem have had powerful
effects both in academia and in politics. Buchanan, Rowley, and others
identify the sources and consequences of these ideas about deficit finance.
They acknowledge the economic sense in which debt and taxes are equivalent
(It was Buchanan who designated this debt-tax relationship as the Ricardian
Equivalence Theorem three decades ago); but they emphasize the political
sense in which debt and taxes are radically different.
The curious outlier in this
section on the impact of ideas is a short chapter (three pages of text)
by Tullock. Following two lengthy and well argued chapters by Rowley on
Keynes and his legacy, Tullock proclaims the "general irrelevance of the
Theory" on the basis of a simple empirical test. Tullock compares the
periods before and after the Keynesian Revolution using descriptive statistics
along with some correlations between deficits and unemployment. The absence
or weakness of statistically significant differences between his correlation
coefficients cause him to doubt that Keynes's allegedly revolutionary book
had any significant impact on the real world.
Some of the most insightful
chapters are found in the section that deals with the role of institutions.
Wagner identifies fundamental flaws in conventional justifications of government
debt. For instance, public borrowing allows taxpayers to take advantage
of the government's good credit rating and low borrowing costs. But considerations
of risk and bureaucracy allow Wagner to conclude that the relatively low
borrowing rate represents no genuine social gain. W. Mark Crain calls attention
to the increasingly important committee system in legislative bodies. Seniority
rules as they affect committee leadership give durability to government
spending programs and hence to the deficits that help to finance them.
Dwight Lee provides a masterful public-choice analysis of the asymmetric
dynamics of taxing and spending.
The final section begins
with a provocative chapter by Buchanan on the ethics of default. Does the
existence of a default-risk premium on government securities have implications
concerning the moral status of claims on future taxpayers? The greater
concern in these concluding chapters, however, is about constitutional
reform that can help us avoid having to deal with either the ethics or
the economics of default. The arguments lead convincingly to the conclusion
that a balanced-budget amendment is a necessary though not sufficient condition
for the re-establishment of fiscal responsibility in the public sector.
Roger W. Garrison
1. Buchanan, James. M. and Gordon Tullock, Calculus
of Consent. Ann Arbor: University of Michigan Press, 1962.
2. Buchanan, James M. and Richard E. Wagner, Democracy
in Deficit: The Political Legacy of Lord Keynes. New York: Academic