Wars will continue to be entered into impulsively unless the people are accustomed to paying for them as they go along. Borrowing buffers the people from the realities of what is being done in their name and prevents the connection being made between high taxes and war. The result is that the people are more readily led into unnecessary wars. Thus for small police action wars, the model adopted by Australia to finance its involvement in East Timor should be utilized. In that instance, a levy was imposed on every person’s income and expressly named the East Timor Levy. The cost was not hidden in consolidated revenue, nor deferred to future generations by borrowing. Instead, the actual generation that actually voted for the politician, that actually committed the troops, was made to pay.
Wars of survival
In a life and death struggle such as World War II, borrowing has its place. It allows the capital of neutral countries to be diverted toward the war effort. The fact that it must be repaid after the war, and that the tax burden of doing so will be onerous, is of little consequence if the alternative is defeat, enslavement or extermination. Thus Britain, when it was threatened with invasion by Nazi Germany, was warranted in borrowing to finance foreign purchases. The United States, never being at risk of conquest, was not.
Victory in cold wars, such as the contest between the United States and the Soviet Union and the present struggle between the United States and China, is every bit as important as victory in hot wars. However, borrowing to finance them will lead to defeat. This is because the key to victory in such contests is endurance. Borrowing is unsustainable; the soundest policy is to finance all expenditures directly from tax revenues. Otherwise the interest burden eats into the income of the nation in the same way it eats into the income of an individual who borrows on his credit card.