Taxes and Deficits

From Hoisington Investment Management – Quarterly Review and Outlook, Fourth Quarter 2012 as quoted by John Mauldin in Outside the Box.

 ...the latest fiscal policy actions will serve to further restrain economic growth. We cannot tax ourselves into prosperity as FDR’s 1937 effort and numerous other historical cases demonstrate. We can, however, deficit spend ourselves into poverty. Consistent with the academic research, we could not find historical precedent for the proposition that prolonged deficit spending achieved prosperity.
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Still valid is the thinking of classical economists like Adam Smith and John Stuart Mill: prosperity derives from the hard work, creativity and ingenuity of a country’s people, not by the federal government spending funds that it does not have. However, by diverting dollars from highly productive individuals and businesses through borrowing or taxes, government policy can spend a country into poverty. Transferring assets from income and wealth generators to consumption, unproductive or even counterproductive uses, however, produces failure.