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Milton Friedman has often said that government budget deficits are not nearly as big a problem as the level of government spending. To see the truth of MF's point, consider a simple example of two states, Graustark and Ruritania, and the fiscal positions of each government, ceteris paribus.

The numbers are small to keep it simple.


GDP $10,000,000
Govt. Spending 3,000,000
Tax Revenue 3,000,000
Deficit 0


GDP $10,000,000
Govt. Spending 600,000
Tax Revenue 500,000
Deficit 100,000

Graustark's state has a balanced budget, but spends 30% of the country's GDP. Ruritania's state is running a deficit of $100,000, which is 1% of its GDP, but its fiscal burden is much smaller than Graustark's. Ruritania could even increase its spending by a relatively large percentage and still not engage in anywhere near as much of what Rothbard called government depradation as Graustark.

Which country would you rather live in?

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