Government Economic Injections an Economic Stimulus?

Is government spending a good economic stimulus?  The answer is “no.”  And yet so many are convinced of this Keynesian notion.

This article uses that as a key starting point, arguing that inevitable lower city and county budgets (from reduced revenues, i.e. from declining property values) will wreak economic havoc once they really get going.  What the author does not explain is that county and city budgets come from taxation, money taken from productive areas and money-making individuals.  Government, from an economic standpoint, is not productive: it does not voluntarily generate its own revenue.  It is a leech.  You may argue it is a necessary leech.  But the point remains: government is a consumer of confiscated revenue, not a producer of a good or service individuals will voluntarily pay for.  You may say that individuals vote for tax increases all the time, as in a community voting for an increased levy to go to education spending, and you would be right.  This does not change the fundamental idea that governments (including local governments) take money rather than produce wealth themselves.

Those not employed by government must be productive to make money; that is, we must somehow figure out some way to provide some good or service someone (or many someones) are willing to pay for.  This may sound very tricky.  But the market has coordinated this so that for those that want it simple, it is simple: go to college and become a lawyer, or a doctor, or an engineer.  Then find someone willing to use your skills and pay you money for your services.  For those who want a more open-ended approach, not really interested in working for “the man,” the market allows for entrepreneurs to work for themselves.

You may say that local governments provide all sorts of necessary services: fire departments, police departments, a court system, road clean-up, education, libraries, etc., and you would be right.  But the point remains that whatever money they spend is taken from somewhere else, from someone that would rather spend their money somewhere else.  I admit that there are fractions of government spending that are voluntary, and with these fractions, I have no moral quibble.  When individuals choose how to spend their money, I may disagree with the choice on a basis of personal preference, but I see no moral problem with voluntary donations.

My point is this: for governments to spend money (even most local governments) they must take it from somewhere else.  If they cut back their budgets, that means more money for you and I to spend on something else.  Less taxes (and especially less taxes and less spending) do mean an economic stimulus.  If we’d rather spend it on government, then we will do so.  But chances are we will find some more personally pressing need.

In summary, Louis Uchitelle (the author of the referenced article) got the problem all wrong.  Government spending is not the economic boon Keynesian theory says it is.  It is rather, as the Austrian School of Economics would indicate, money diverted or taken from areas where it would rather be invested, saved, or spent by the individuals who own it.  Until we understand this, we are liable to keep trying to get government “injections” to fix government-related economic problems.


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