staring into the abyss by colin twiggs

Government Spending Programs
Keynesian-style government spending programs are also being promoted by election candidates and in the media. We should not forget that, while governments are reasonably efficient at extracting money from taxpayers, they are highly inefficient when it comes to spending that money. Recently, an economist discussing stimulus packages suggested that about 30 percent of money spent by governments is wasted. I am sure many of you would agree: that estimate seems way too low.

Paying someone to sit at a desk doing nothing or building a bridge to nowhere may make GDP figures look better, but there is no real benefit to the economy. I can already hear the snorts of derision: "What about the benefit generated when those extra wages are spent?" This misguided thinking is evident in many government programs. There is no benefit. All that is done is remove money from the pocket of one person (the taxpayer) and placed it in the hands of another. Henry Hazlitt offered the analogy of smashing shop windows. This no doubt generates more employment and income for glaziers. But shopkeepers have to bear the additional expense — and are likely to pass this on to their customers. Shopkeepers and their customers are therefore deprived of the opportunity of spending that money for their own benefit.

The more public-spirited amongst us may be prepared to forego that additional benefit in order to employ more glaziers, but there is an additional consideration. We have now reduced the surplus (of income over consumption) that is normally used to save and invest. That means that there will be less investment in plant and machinery and new retail facilities; less employment generated in manufacturing these assets; and less employment in operating them. While we have created a new job for one glazier, we have done so at the expense of two or more manufacturing jobs. And exchanged productive plant and machinery for a broken shop window — or a bridge to nowhere.

The bottom line is that government spending programs intended to boost employment are generally ineffective and deplete private investment in new productive capacity. They are a lite version of Mao's Great Leap Forward — which eventually resulted in the death by starvation of up to 40 million Chinese.

The irony is that China now enjoys unparalleled prosperity as it opens its economy to free market forces — while western governments slide ever closer toward socialism.