Deficits, Debt, and Democracy

Deficits, Debt, and Democracy

Wrestling with Tragedy on the Fiscal Commons

Richard E. Wagner

This timely book reveals that the budget deficits and accumulating debts that plague modern democracies reflect a clash between two rationalities of governance: one of private property and one of common property. The clashing of these rationalities at various places in society creates forms of societal tectonics that play out through budgeting. The book demonstrates that while this clash is an inherent feature of democratic political economy, it can nonetheless be limited through embracing once again a constitution of liberty.

Chapter 7: Regulation as Alternative Taxation

Richard E. Wagner

Subjects: economics and finance, public choice theory, public finance, politics and public policy, public choice


There is more to the fiscal commons than the budgetary acts of taxation and appropriation. The lower part of Figure 3.1 portrayed a society as composed of two types of enterprise, some established on the market square and some on the public square. Statistics can be compiled on the economic activity that runs through each of those sets of enterprises, which would map onto measures of the private and public components of GDP. This is what is done when statements are advanced about the relative share of government in total economic activity. If the two squares were independent, measures of relative share would give reasonable portraits of relative significance. But the squares are not independent: they are entangled, deeply so these days. If the squares were independent, relationships among market-based entities would be governed by private law and relationships among polity-based entities would be governed by public law. Relationships between the two types of entity, moreover, would be governed by agreement between the entities. In any case, the rules governing relationships between market entities would be governed by those entities alone. In this case, the terms of a credit contract, as well as whether a contract was created, would be for the two parties alone to determine. The situation is different when public ordering can trump private ordering. The terms of credit contracts are no longer for the borrower and lender to determine because entities established on the public square are also involved in setting the terms of contract as...

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