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 8: Public Finance for a Constitution of Liberty

Richard E. Wagner

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


Over the past century, the theory of public finance has largely reflected the normative orientation of fiscal engineering whereby fiscal expertise is brought to bear on questions concerning which taxes should be used, how high should they be, what programs should government operate, and how much should be spent on those programs. This theoretical orientation portrays public finance as applied statecraft, as an element of the economics of control, to recall the title used by Abba Lerner (1944). In Lerner’s formulation, taxation is not an instrument for pricing activities organized within the fiscal commons because those services are provided according to an expert-based logic of planning and not according to a logic of market-like interaction. There is no reason for a balanced budget wherein each public commitment to spend is accompanied by a public commitment  to tax to finance the expenditure. Taxation would come into play only to soak up what would otherwise be excessive, inflationary spending. In place of a balanced budget, the notion in play is government’s use of its budget to balance the economy. This is the economics of control and not the economics of liberty. Among other things, what is surely notable in this formulation is the hierarchical character of government, which conflicts with the polycentric character of the American constitutional order (V. Ostrom1973, 1987, 1997). The public finance of control reflects “the presuppositions of Harvey Road,” which map directly onto an embrace of the economics and public finance of control under which the scholar participates...

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