With a few days' perspective on the State of the Union address, which grows ever closer in spirit and content to outtakes from the prophetic 2006 comedy Idiocracy, it's worth revisiting one of Milton Friedman's most enduring insights. "Keep your eye on one thing and one thing only: how much government is spending," the libertarian Nobel laureate counseled. "That's the true tax." Don't be distracted, he added, by talk about balancing budgets or cutting marginal tax rates. Focus on how much money the federal government spends each year, because that's the ultimate indicator of how much it costs.
Friedman was talking in the late 1970s, when top marginal income-tax rates were 70 percent and debates were focused on lowering the tax burden and, by implication, government spending. Back then, deficit spending was something that mostly happened during wartime or recessions, rather than being taken for granted the way it has been since Jimmy Carter occupied the White House. If you cut the amount of money the government brought in, went the general argument, you also cut the amount of money it could spend. Friedman was emphasizing that whether spending is paid for in the moment, it is the best proxy for government involvement in everyday life. It has to be paid for eventually, either by raising taxes, reducing services, or by inflating the currency—all actions that make us subordinate to politics and politicians.
