Here it is, a summation of why government spending as a whole is bad economics. Let us begin with a video…
More people should listen to this guy:
How stupid does that reporter sound when she tries to spin things to be “positive”? HELLO LADY, THIS GUY CALLED THE COLLAPSE AND SAYS THINGS ARE GETTING WORSE, LET’S NOT TRY AND DISCOUNT HIM BECAUSE WE CARE ABOUT KEEPING MORALE UP WHEN AMERICANS SHOULD BE TAKING A HARD LOOK AT THE WAY THEY LIVE FINANCIALLY! The media keeping up this facade will only make it worse. You ain’t seen nothin’ yet, lady…
Note especially the talk of GDP as a false indication of an economy’s growth. It is absolutely true. GDP can be easily manipulated, and it is not indicative of a growth in wealth, only a consumption or “passing around” of funds. I want to hone this point a little, with the following words:
[W]hat often drives GDP up is far from something that would be considered economically stimulative. Indeed, government measures of inflation are notoriously slow to pick up on the horrors of dollar devaluation. Yet when devaluation leads to higher prices, GDP increases.
Government spending — which has no resources that it hasn’t first extracted from the private sector — also boosts GDP, and then if imports to the U.S. decline (a flashing negative economic signal if there ever was one), this actually registers as growth in the calculation of this most worthless of measures of our economic health.
It’s time to abolish GDP because its existence as the accepted measure of economic activity means that we cannot achieve the necessary reforms that would really allow our economy to grow. With so much of our economy directed towards work of little to no economic value, but which ultimately factors into the GDP calculation, we’re restrained from doing what we need to do to truly advance ourselves.
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Considering the floating dollar itself, the utter chaos caused by the latter has created whole industries meant to soften the blow of a dollar without definition. The currency market alone is a $3 trillion per day exchange as myriad great minds are forced into facilitator roles as traders of needless uncertainty, as opposed to producers. We’d have to invent hedge funds if they didn’t exist, but their growing footprint can to a high degree be laid at the door of President Nixon’s fateful 1971 decision to sever the dollar’s link to gold.
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Lastly, a powerful reduction in government spending would surely bring down GDP substantially. Governments can only create jobs and economic activity to the extent that they take from the private sector, so major spending cuts at first would bring great pain to sectors of the economy in and out of government, but wholly reliant on government largesse.
It was Murray Rothbard who initially forcefully posited the theory that government spending should not be a part of GDP, as government spending must take from the private market’s wealth in the first place to occur at all. More than merely taking government spending out of GDP, Rothbard believed that government spending should be subtracted from GDP once taken out, as it could only redistribute or destroy wealth, not produce. Today, we are seeing an accelerating rate of government spending, one that will destroy the private sector if it is allowed to continue, as the taxation that would be required would obliterate any incentive to produce that firms and private individuals may still possess.
Rothbard himself explains more in the essay The Fallacy of the Public Sector (emphasis added):
We have heard a great deal in recent years of the “public sector,” and solemn discussions abound through the land on whether or not the public sector should be increased vis-à-vis the “private sector.” The very terminology is redolent of pure science, and indeed it emerges from the supposedly scientific, if rather grubby, world of “national-income statistics.” But the concept is hardly wertfrei; in fact, it is fraught with grave, and questionable, implications.
In the first place, we may ask, “public sector” of what? Of something called the “national product.” But note the hidden assumptions: that the national product is something like a pie, consisting of several “sectors,” and that these sectors, public and private alike, are added to make the product of the economy as a whole. In this way, the assumption is smuggled into the analysis that the public and private sectors are equally productive, equally important, and on an equal footing altogether, and that “our” deciding on the proportions of public to private sector is about as innocuous as any individual’s decision on whether to eat cake or ice cream. The State is considered to be an amiable service agency, somewhat akin to the corner grocer, or rather to the neighborhood lodge, in which “we” get together to decide how much “our government” should do for (or to) us. Even those neoclassical economists who tend to favor the free market and free society often regard the State as a generally inefficient, but still amiable, organ of social service, mechanically registering “our” values and decisions.
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Apart from the public sector, what constitutes the productivity of the “private sector” of the economy? The productivity of the private sector does not stem from the fact that people are rushing around doing “something,” anything, with their resources; it consists in the fact that they are using these resources to satisfy the needs and desires of the consumers. Businessmen and other producers direct their energies, on the free market, to producing those products that will be most rewarded by the consumers, and the sale of these products may therefore roughly “measure” the importance that the consumers place upon them. If millions of people bend their energies to producing horses-and-buggies, they will, in this day and age, not be able to sell them, and hence the productivity of their output will be virtually zero. On the other hand, if a few million dollars are spent in a given year on Product X, then statisticians may well judge that these millions constitute the productive output of the X-part of the “private sector” of the economy.
One of the most important features of our economic resources is their scarcity: land, labor, and capital-goods factors are all scarce, and may all be put to various possible uses. The free market uses them “productively” because the producers are guided, on the market, to produce what the consumers most need: automobiles, for example, rather than buggies. Therefore, while the statistics of the total output of the private sector seem to be a mere adding of numbers, or counting units of output, the measures of output actually involve the important qualitative decision of considering as “product” what the consumers are willing to buy. A million automobiles, sold on the market, are productive because the consumers so considered them; a million buggies, remaining unsold, would not have been “product” because the consumers would have passed them by.
Suppose now that into this idyll of free exchange enters the long arm of government. The government, for some reasons of its own, decides to ban automobiles altogether (perhaps because the many tailfins offend the aesthetic sensibilities of the rulers) and to compel the auto companies to produce the equivalent in buggies instead. Under such a strict regimen, the consumers would be, in a sense, compelled to purchase buggies because no cars would be permitted. However, in this case, the statistician would surely be purblind if he blithely and simply recorded the buggies as being just as “productive” as the previous automobiles. To call them equally productive would be a mockery; in fact, given plausible conditions, the “national product” totals might not even show a statistical decline, when they had actually fallen drastically.
And yet the highly touted “public sector” is in even worse straits than the buggies of our hypothetical example. For most of the resources consumed by the maw of government have not even been seen, much less used, by the consumers, who were at least allowed to ride in their buggies. In the private sector, a firm’s productivity is gauged by how much the consumers voluntarily spend on its product. But in the public sector, the government’s “productivity” is measured – mirabile dictu – by how much it spends! Early in their construction of national-product statistics, the statisticians were confronted with the fact that the government, unique among individuals and firms, could not have its activities gauged by the voluntary payments of the public – because there were little or none of such payments. Assuming, without any proof, that government must be as productive as anything else, they then settled upon its expenditures as a gauge of its productivity. In this way, not only are government expenditures just as useful as private, but all the government need to do in order to increase its “productivity” is to add a large chunk to its bureaucracy. Hire more bureaucrats, and see the productivity of the public sector rise! Here, indeed, is an easy and happy form of social magic for our bemused citizens.
The truth is exactly the reverse of the common assumptions. Far from adding cozily to the private sector, the public sector can only feed off the private sector; it necessarily lives parasitically upon the private economy. But this means that the productive resources of society – far from satisfying the wants of consumers – are now directed, by compulsion, away from these wants and needs. The consumers are deliberately thwarted, and the resources of the economy diverted from them to those activities desired by the parasitic bureaucracy and politicians. In many cases, the private consumers obtain nothing at all, except perhaps propaganda beamed to them at their own expense. In other cases, the consumers receive something far down on their list of priorities – like the buggies of our example. In either case, it becomes evident that the “public sector” is actually antiproductive: that it subtracts from, rather than adds to, the private sector of the economy. For the public sector lives by continuous attack on the very criterion that is used to gauge productivity: the voluntary purchases of consumers.
We may gauge the fiscal impact of government on the private sector by subtracting government expenditures from the national product. For government payments to its own bureaucracy are hardly additions to production; and government absorption of economic resources takes them out of the productive sphere. This gauge, of course, is only fiscal; it does not begin to measure the antiproductive impact of various government regulations, which cripple production and exchange in other ways than absorbing resources. It also does not dispose of numerous other fallacies of the national product statistics. But at least it removes such common myths as the idea that the productive output of the American economy increased during World War II. Subtract the government deficit instead of add it, and we see that the real productivity of the economy declined, as we would rationally expect during a war.
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But how is it that only government agencies clamor for more money and denounce the citizens for reluctance to supply more? Why do we never have the private-enterprise equivalents of traffic jams (which occur on government streets), mismanaged schools, water shortages, and so on? The reason is that private firms acquire the money that they deserve from two sources: voluntary payment for the services by consumers, and voluntary investment by investors in expectation of consumer demand. If there is an increased demand for a privately owned good, consumers pay more for the product, and investors invest more in its supply, thus “clearing the market” to everyone’s satisfaction. If there is an increased demand for a publicly owned good (water, streets, subway, and so on), all we hear is annoyance at the consumer for wasting precious resources, coupled with annoyance at the taxpayer for balking at a higher tax load. Private enterprise makes it its business to court the consumer and to satisfy his most urgent demands; government agencies denounce the consumer as a troublesome user of their resources. Only a government, for example, would look fondly upon the prohibition of private cars as a “solution” for the problem of congested streets. Government’s numerous “free” services, moreover, create permanent excess demand over supply and therefore permanent “shortages” of the product. Government, in short, acquiring its revenue by coerced confiscation rather than by voluntary investment and consumption, is not and cannot be run like a business. Its inherent gross inefficiencies, the impossibility for it to clear the market, will insure its being a mare’s nest of trouble on the economic scene.
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Most economists have two basic arguments on behalf of the public sector, which we may only consider very briefly here. One is the problem of “external benefits.” A and B often benefit, it is held, if they can force C into doing something. Much can be said in criticism of this doctrine; but suffice it to say here that any argument proclaiming the right and goodness of, say, three neighbors, who yearn to form a string quartet, forcing a fourth neighbor at bayonet point to learn and play the viola, is hardly deserving of sober comment. The second argument is more substantial; stripped of technical jargon, it states that some essential services simply cannot be supplied by the private sphere, and that therefore government supply of these services is necessary. And yet, every single one of the services supplied by government has been, in the past, successfully furnished by private enterprise. The bland assertion that private citizens cannot possibly supply these goods is never bolstered, in the works of these economists, by any proof whatever. How is it, for example, that economists, so often given to pragmatic or utilitarian solutions, do not call for social “experiments” in this direction? Why must political experiments always be in the direction of more government? Why not give the free market a county or even a state or two, and see what it can accomplish?
If you have some time, read the essay in full that I have not reproduced here. I am not done with this post yet…
On the same premise, let me relate to you the thoughts of far greater minds than I on two areas: government jobs and government spending.
Do government jobs produce economic good? In a word, no:
Ron Paul’s recent reply to a question posed to him by Wolf Blitzer reveals an interesting litmus test for whether or not a person accepts the fundamental premise of modern (Keynesian) macroeconomics.
As Politico reports,
Appearing on CNN ahead of the speech, Paul was pressed by Wolf Blitzer on how eliminating about 221,000 government jobs across five cabinet departments would boost the economy. He responded: “They’re not productive jobs,” he said.
Are they, or are they not “productive jobs?”
It must first be noted that Dr. Paul does not mean to suggest that these jobs involve low productivity in the economic sense of the term, i.e., output per hour. Dr. Paul was not simply suggesting that government employees are lazy. What Paul meant was that government jobs do not provide society with a consumer good or service.
Think of the US ambassador to Ruritania. If we were to measure the ambassador’s productivity in terms of output per hour, the denominator of that equation would simply consist of all the hours he or she worked.
But think about the ambassador’s output. An ambassador’s daily work consists largely of meeting with foreign diplomats, negotiating, writing reports and memos, and engaging in some management of diplomatic projects. Adding up all of these meetings, reports, and project-management tasks would give us some measure of ambassadorial “output.” An ambassador who completes a greater number of such tasks would be more productive than another.
[Here] Dr. Paul — along with most Austrian School economists — suggests that the tasks performed by an ambassador (or any other government employee) do not provide a market function. These services would not be demanded by anyone in a market economy.
In essence, the government creates a demand for these services out of thin air: the existence of ambassadors is what leads to the work done by ambassadors. They do not take their services to market to sell them to anyone who happens to be a willing buyer. Governments appoint ambassadors to perform services that no consumer wishes to buy.
Compare those services to the services performed by an individual for whom there is a very real demand — say, a mechanical engineer. Mechanical engineers are hired by clients who cannot efficiently meet the needs of their existing customers until they have a solution to a mechanical problem, such as moving large objects from point A to point B, increasing the speed at which widget X is produced, etc. The mechanical engineer designs a solution to these problems for a fee corresponding to the amount of money the client expects to save by having a new, more efficient solution.
Considering that ambassadors are paid out of money collected from public revenues, whereas mechanical engineers are paid out of the accumulated capital of individuals and firms, government jobs create the following situation:
1. Governments hire and begin paying ambassadors.
2. Governments tax the public to pay ambassadors.
3. The public has less total savings, because they have paid more in taxes.
4. With reduced savings, the public has less capital to invest in engineering projects.
Thus, the impact of paying government employees is to transfer economic resources from the production of economic goods and services to the performing of services for which there is no market demand.
This is what Dr. Paul means when he says that government jobs are “not productive.”
Stay tuned for the conclusion of thoughts and finds on the topic of government spending tomorrow…