Deficits are Negative Externalities

Inside, outside
Leave me alone
Inside, outside
Nowhere is home
--The Who

Nice reminder that government deficits are negative externalities. A negative externality occurs when A's actions impose costs on B without B's consent.

The late Ronald Coase was one of the first economists to formally consider the externality problem.

The oft cited negative externality is pollution. For example, a manufacturer dumps waste into a river that could have negative consequences for residents living downstream.

Deficits pose a similar situation. One generation purchases goods and services through government borrowing while imposing the cost of paying back the debt on future generations.

The solution to negative externalities is often thought to be 'more government.' Indeed, helping indviduals protect property rights infringed by negative externalities is a proper role for government.

However, as the deficit situation demonstrates, it is also possible for government to sponsor its own brand of negative externalities.