Everyone Loves A Generous Government Until They Have To Pay For It

Authored by Charles Hugh Smith via Substack,

Not only does everyone love getting "free money" from the state, they also love hearing the fantasy repeated endlessly that debts are no problem...

Governments, like individuals, can spend liberally with great generosity, or they can be frugal. Everyone receiving government money loves the state's free-spending generosity, as it is "free money" to the recipients.

But there is no such thing as truly "free money," a reality discussed by Niccolo Machiavelli in his classic work on leadership and statecraft, The Prince, published in 1516. In Machiavelli's terminology, leaders could either pursue the positive reputation of being liberal in their spending (not "liberal" in a political sense) or suffer the negative reputation of being mean, i.e. miserly, tight-fisted and frugal.

Machiavelli pointed out that the spending demanded to maintain the reputation for free-spending liberality soon exhausted the funds of the state and required the leader to levy increasingly heavy taxes on the citizenry to pay for the state's largesse.

Once we examine this necessary consequence of liberal spending, it turns out the generous government is anything but generous, as it is eventually forced to impoverish its people to support its spending.

It is the miserly leader and state that is actually generous, for it is the miserly leader / state that places a light burden on the earnings and livelihoods of the citizenry.

As Machiavelli explained, taxes and the inflation that comes with free spending both rob everyone, while the state's generosity is a political process that necessarily distributes the largesse asymmetrically:

If he is wise he ought not to fear the reputation of being mean, for in time he will come to be more considered than if liberal, seeing that with his economy his revenues are enough, that he can defend himself against all attacks, and is able to engage in enterprises without burdening his people; thus it comes to pass that he exercises liberality towards all from whom he does not take, who are numberless, and meanness towards those to whom he does not give, who are few.

The profligate state and leader fail, for their resources are squandered.

We have not seen great things done in our time except by those who have been considered mean; the rest have failed. A prince, therefore, provided that he has not to rob his subjects, that he can defend himself, that he does not become poor and abject, that he is not forced to become rapacious, ought to hold of little account a reputation for being mean, for it is one of those vices which will enable him to govern.

Machiavelli understood that the positive reputation generated by profligacy decays as quickly as solvency. Everyone loves getting "free money" from the state until the bill comes due: the decay of purchasing power (i.e. inflation), higher taxes and fees, and the ever-increasing burdens of interest to be paid on soaring state debts that squeezes out all other spending.

And there is nothing wastes so rapidly as liberality, for even whilst you exercise it you lose the power to do so, and so become either poor or despised, or else, in avoiding poverty, rapacious and hated. And a prince should guard himself, above all things, against being despised and hated; and liberality leads you to both. Therefore it is wiser to have a reputation for meanness which brings reproach without hatred, than to be compelled through seeking a reputation for liberality to incur a name for rapacity which begets reproach with hatred.

Not only does everyone love getting "free money" from the state, they also love hearing the fantasy repeated endlessly that debts are no problem because we will continue to "grow our way out of debt:" in other words, debt will forever remain painless, and so state profligacy can continue forever.

To the degree that "growth" is a function of skyrocketing debt, this fantasy feeds on itself: borrowing and spending soar and so does growth. But as the chart above shows, debt is expanding faster than the real economy. This is known as diminishing returns: to keep the illusion of "growth" alive, the debt dragon must eat its own tail.

Everyone loves a generous government until they have to pay for it--and we all eventually pay for it one way or another.