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Monday, February 18, 2013

Government Spending Does Not Grow the Economy

I don’t know where the disconnect is. Is it just politics and the people who are the recipients of government money just pretend they believe it or are people just stupid to begin with and join the “destruction leads to economic success” crowd.

Government does not produce anything for sale. They get their money mostly from taxes, income taxes, excise taxes, sales tax and other administrative fees. These moneys come from the taxpayer< people who work for private business and produce goods and provide services> for which they are paid by the consumer> with this so far?

When the government takes these moneys in they then transfer these funds to their prospective budgets and agencies that spend it on what they do, like the USADA, the FBI, the FDA and the money is also allocated to Medicare, SSI and states in the form of Federal Highway Funds.
All this moving of funds takes people, government employees, who handle the accounting, the money transfers and keeps track of the money coming in from their various sources. In private enterprise we call these people “Overhead”. These people cost money in pay and benefits. They only exist to handle the tax money coming in and there are legions of them from local IRS agents, town collectors, state collectors to the federal IRS. This process carries a price tag.

This is why when either State or Federal agencies spend taxpayer money, they put out much less than they take in. This is in the form of the previously mentioned overhead. The money handling  costs reduce what the government takes in.

A great example of government spending in action is Boston’s Central Artery/Tunnel Project, aka The Big Dig, a federal highway’s project that when 9 years beyond it’s 1998 completion date and over ran its budget from a projected $2.8 Billion to an incredible $14.8 Billion and will end up costing a total of $21 Billion once the bonds floated have been paid for. Taxes have had to go up to pay for this massive expenditure. The Feds only contrubuted $7 Billion to the project meaning the State of Massachusetts has to pay the other half. And it was a lousy job. The tunnel leaks like a sive and the ceiling panels are suspect. And they didn'even make the road wider.
Government too often starts to look for a place to put a bridge rather than where a bridge is needed. So when someone says the government creates jobs I have to laugh out loud. The government does not create jobs. Companies create jobs. The only difference is when the government takes money out of the private sector to create a jobs, we only see those jobs. We don't see the jobs, the buildings  and the opportunities that money would have created because it was never allowed to happen.
These private sector jobs would also have taken place without the overhead that government is stuck with as a matter of course. This is why a government job is not a net gain to the economy. These jobs don’t grow the economy because they go to non-producing jobs that provide no measurable return to the economy. Oh, the government workers put money back into the economy when they spend it but as a whole, less money is going back into the economy than was taken. This is a loss in economic growth, not a gain. There are too many people handling the process for there to be any cost effectiveness to their public works.  This is not a political thing, it is an accounting thing. It’s just the math of the situation. The more people involved in the process, the less that comes out of it. Everyone gets a check but not every job produces growth.
Growth only occurs in the private sector where the efficiencies of competition and the marketplace determine success and expansion. If you make something people are willing to buy voluntarily, you will grow the economy. Governent didn't invent Microsoft or Samsung.

The latest outright lie I’ve heard was that the U.S. economy shrank mostly because of government cuts. What didn’t the government produce that they had to cut back on other than killing machines perhaps? No, the nation does not run on government spending, the nation runs on private sector production and that is something that the government itself is killing because of higher taxes and increased regulations. This is squeezing the consumer and when people stop consuming, the economy shrinks.
This is not a surprise to anyone where they can see government growing and taking resources out of the economy and causing producers to produce less since they can’t sell what they’re making because consumers are buying less since there is less in their pockets.

What did they think was going to happen?

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