I’m not sure I agree with you here. First, government spending in terms of government employment is an absolute economic pillar. If I recall correctly, the draw down in government employment is believed to have significantly excaberated the great depression. Also, numerous industries owe their modern existence and structure to direct government payments (farming, airlines, ports, passenger trains, education, medical research, etc.) and many others rely heavily upon implied government spending in the forms of tax structure.
That doesn’t mean - of course - that every tax dollar spurs the economy. But I can’t accept the theory that private industry alone is responsible for economic growth and health. We can’t be willfully blind of the impact that government expenditure has on the economy. By far, the federal government is the biggest employer in the country. And the downstream effects that exists as a result of the government’s status as employer can’t be ignored.
Pax,
OA
I don’t think many would argue with this as a general proposition. Where it becomes difficult is when one tries to get to specifics, or even to the more general question how much debt and spending are too much.
I think all would agree that, say, government absorption of all income would be too much. Well, true Marxists might not quite, but most would. I think all would agree that no taxpayer support for the government at all is too little. I think all would agree that, in general, it’s better for the government to pay its way with money that is actually created by production than for it to do so with money that’s borrowed or simply created by fiat.
The government runs chronic deficits, and has for a long time, but right now it’s particularly high. And, we’re facing a fairly high unemployment level, a higher still underemployment level and a lack of investment. I think most would agree with those statements.
It would be one thing if government deficits could reasonably be projected out to disappear or to at least moderate to a more traditional level, but they don’t. Even if one assumes a return to a better GDP, they don’t. They keep devouring more and more of the nation’s production.
Now, regarding the Keynesian “multiplier effect” which I think is what you’re talking about, it has some merits, but it does not take certain things into consideration. In particular, it doesn’t take distribution into account or relative efficiences of one kind of spending over another. Aside from truly useful infrastructure building (“goods having common utility, relatively equal to all”) and defense, most government spending is what may be reasonably called 'transfer payments", that is, money transferred from one citizen to another.
A problem with transfer payments is that, while some are certainly reasonable in a decent society, some bear no particular relationship with either need or usefulness to the economy generally. In addition, using a simplified expression “IL + IP=C -T” (Income from labor plus income from property equals consumption minus transfers) it has to be recognized that there are voluntary transfers as well as involuntary transfers. To the extent involuntary transfers increase, voluntary transfers decrease. So, for example, if my taxes increase (involuntary transfer) my ability to provide for my spouse, children, next door neighbor, church and favorite charities decreases.
Income from work + Income from transfers has equalled approximately 2/3 of national income since records have been kept. (about 1929). That never varies by more than a few percentage points, no matter what. The remaining 1/3 is income from property (capital).
An interesting thing is that income from work always decreases when income from transfers increases. That’s because one way or another, most of the transferred income comes from work through taxes of all kinds, and not just the income tax.
So, in the face of recession that seems to threaten depression, is increasing transfer payments really the thing to do? Well, there’s that “multiplier effect”. But simply positing the multiplier effect ignores the fact that the money expected to multiply would likely have done so anyway, but in a more efficient manner. VERY simply put, the mother who, say, buys milk, buys and distributes it among children, husband, herself and perhaps a neighbor, in a more efficient and effective manner than does a government program that buys milk, pays a manufacturer to turn it into cheese and stores it in caves until it can figure out a way to get rid of it. (which is what it does)
But it has to be admitted that savings is also a “transfer”, or a part of it. So, do we need to seize all savings and spend it on social programs or whatever? After all, the banks are awash in money and nobody wants to borrow. So what’s the answer?
In my opinion, it is to remove the obstacles to spending and employment. As in the Depression, those obstacles are largely caution due to a fear of a threatening situation. What’s the threatening situation? Well, unknown costs of employment, unknown but oncoming regulation affecting employment, unknown but threatening tax burdens, unknown but threatening interest rates, unknown but threatening costs of energy and everything that uses energy, to state a few.
In short, a government that does radical and disturbing things, and not just in spending.
Other than the 2012 elections (and only “maybe” those) there really isn’t a remedy for what we’re facing now. Ideology rules and good sense is not prevailing.
