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Lessons from the Fiscal Cliff

CAMBRIDGE – One of the many things I learned from Milton Friedman is that the true cost of government is its spending, not its taxes. To put it another way, spending is financed either by current taxes or through borrowing, and borrowing amounts to future taxes, which have almost the same impact on economic performance as current taxes.

We can apply this reasoning to the United States’ unsustainable fiscal deficit. As is well known, closing this deficit requires less spending or more taxes.