The Fiscal Illusion
A nation cannot stay sovereign when its citizens stop being owners.
Every generation inherits a world it did not build. Ours inherited prosperity, technology, and peace, and turned them into distraction, division, and debt. We are the stewards of a civilization we no longer understand.
The crisis we face is not merely economic or political. It is cognitive. We have forgotten how the machinery of our freedom works, and because of that, we have begun to mistake dependency for compassion and short-term comfort for progress.
As someone who became a U.S. citizen in 2013, I once believed understanding was our greatest strength. I remember studying for my citizenship test, learning how laws are made, what the Constitution protects, and what responsibilities come with freedom. When I swore my allegiance to this country, I thought I was joining a people who knew these things too. But knowledge fades quietly, and confusion fills the void it leaves behind.
We talk about budget deficits, trade deficits, and trust deficits. But the deepest deficit America faces is knowledge. When citizens stop understanding the machinery of government and money, democracy turns into theater. A population that cannot explain how its institutions function is easily steered through fear and promises.
The average voter experiences government as a benevolent ATM. The costs are hidden in deferred taxes, inflation, or debt service. Economists James Buchanan and Richard Wagner called this fiscal illusion1: It feels generous and compassionate, but over time it weakens the foundation that compassion depends on.
When the illusion finally breaks, when prices rise, when savings buy less, when jobs disappear, people rarely connect the pain to policy. They connect it to betrayal. The outrage is real but misdirected. They blame the rich, the elites, the corporations, or the system. That confusion fuels populism on both the left and right. AOC, Bernie Sanders, Donald Trump, RFK Jr., they all speak different languages but share the same grammar: the promise to punish the powerful on behalf of the forgotten. Populism is what fills the vacuum when literacy dies.
Our K-shaped economy is not a moral failure but a mechanical one, built into the system itself. When central banks create new money or when governments borrow trillions they never intend to repay, new liquidity enters the system from the top down. This is the Cantillon Effect: the first recipients of new money ( banks, corporations, and asset holders) spend it before prices adjust2. By the time it reaches wage-earners, inflation has already diluted its value.
That is why dependence rises even among working people. The system quietly transfers purchasing power upward and then offers welfare programs to patch the wounds it created. According to the U.S. Department of Health and Human Services, about 99 million Americans, nearly 30 percent of the population, participated in one of ten major safety-net programs in 20193. I do not say that to shame anyone. In an inflationary economy, dependence is rational. When saving is punished and speculation is rewarded, people will reach for whatever stability they can. But structurally, a democracy of dependents cannot sustain fiscal honesty. One in three citizens relies on the very system that is going broke. How can that electorate vote for restraint?
I think about this whenever I am at the grocery store. The other day I stood in front of an entire wall of milk. Cow’s milk, oat, almond, cashew, pistachio, goat, soy… rows upon rows of abundance. I grew up in post-Soviet Ukraine. In the early 1990s, the shelves were often empty. You took what was there, not what you wanted. So standing in front of that wall of milk, I felt something strange: gratitude that bordered on guilt.
We are so rich we feel poor.
We call it inflation when the price of milk rises. I call it blindness when people no longer see the miracle of choice. Market economies give us that wall. Command economies gave us lines, coupons, and scarcity. The tragedy is that we have forgotten the difference. When citizens lose economic memory, populism feels safe again. “Free” health care, “free” college, “free” housing, all funded by the machinery of debt. But nothing is free; we simply pass the bill to our children.
Democracies tend to have high time preference. They favor the next election over the next generation. Authoritarian and monarchical systems can plan for decades. Since our democracy operate in two and four year cycles, elected leaders must please voters who live in the present and not the future. The Congressional Budget Office projects that U.S. federal debt held by the public will reach 181 percent of GDP by 20534. That is the cost of short-term thinking: promises made to the living, paid for by the unborn.
And yet, the future is not an abstraction. It is our children. They will inherit not only the debt but the incentives that produced it: dependence, division, and distrust. We think we are protecting them by funding SNAP, WIC, and Medicaid. In the short run, maybe we are. But we rarely ask what happens when the safety net becomes the entire economy. When the government becomes both provider and debtor, who is left to hold it accountable?
Some people argue that transparency will fix this. If citizens can see the debt clock, they will care. But visibility without literacy changes nothing. We already have dashboards, graphs, and CPI calculators. The numbers are public, but they are not meaningful to most people. It is not a problem of hidden data. It is a problem of unreadable data. Until citizens understand what they are looking at that transparency is just noise.
We need every citizen to see a dollar spent today as a dollar taken from the next generation’s opportunity: an increase in the price of a home, a delay in owning it, a step further away from the American Dream. Until we hold ourselves accountable for what we spend and demand, our governments cannot be accountable either.
Maybe the path out is not austerity or default or inflation. Maybe it is comprehension. Real reform begins with education. Civic literacy and monetary literacy must merge. Imagine if high-school students studied the Constitution and the Federal Reserve’s balance sheet side by side. Would they learned how deficits translate into future taxes, how inflation erodes real wages, and how compound interest applies to national debt as well as savings accounts? Citizens cannot govern what they do not grasp.
The future is not an abstract frontier. It is the next generation, and likely the only one after us that will still have the option to fix what we break. We feed our children today, but we mortgage their tomorrow. We give them health care and education, but we leave them a financial system that guarantees neither will be affordable.
When you have seen a society lose its bearings, as I did in post-Soviet Ukraine, you understand how quickly abundance can vanish. Once the currency loses credibility, everything else follows: trust, civility, even truth. That is why the wall of milk matters. It is not just a dairy aisle; it’s the visible proof of an invisible system: prices, competition, specialization, cooperation. All the quiet miracles that coordination through markets creates. The invisible hand has done its work so well that people stopped believing it exists. They see shelves full of milk and call it privilege, not coordination. Destroy the incentives that sustain that system, and the wall collapses into scarcity again.
The lesson is not nostalgia for monarchy or authoritarian efficiency. It is that freedom demands discipline, and discipline requires understanding. If we cannot see past the next election cycle, the future will belong to those who can, and they might not share our values.
Maybe the true national debt is not measured in dollars at all. Maybe it is measured in understanding. Until citizens reclaim comprehension, both the printing press and the ballot box will remain weapons aimed at the same target: the future.
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James M. Buchanan & Richard E. Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes (1977). Read it HERE.
https://aspe.hhs.gov/sites/default/files/documents/18eff5e45b2be85fb4c350176bca5c28/how-many-people-social-safety-net.pdf
https://www.cbo.gov/system/files/2023-06/59014-LTBO.pdf
“Destroy the incentives that sustain that system, and the wall collapses into scarcity again.”
For some reason, this made me think of all the empty shelves I saw during the Covid lockdowns. Perhaps the government (Biden admin at the time) sometimes “destroys incentives” for whatever reason. Maybe they’re trying to paint a narrative for potential voters by blaming someone or something else, then trying to fix it. Create a problem, then create a solution to look like a hero.
Maybe this is tangential to the point of the article. But it’s just some thoughts I had.