Economic Freedom: Does Government Spending Create Economic Growth?

[Chris]

Does Government Spending Create Economic Growth? (http://www.economicfreedom.org/2012/03/16/does-government-spending-create-economic-growth/)


http://www.youtube.com/watch?feature=player_embedded&v=-BRJXvXOpPI

See also Bastiat's What Is Seen and What Is Not Seen (http://www.econlib.org/library/Bastiat/basEss1.html).

[Conley]

Nice! After showing the scatter plot with no relation between government spending and economic growth, he went right into the argument that there might be a delay between the spending and the economic boom. He debunked that one as well.

The government cannot spend our money more responsibly than we would. It's impossible.

[Peter1469]

Nice! After showing the scatter plot with no relation between government spending and economic growth, he went right into the argument that there might be a delay between the spending and the economic boom. He debunked that one as well.

The government cannot spend our money more responsibly than we would. It's impossible.

But there are some things that the government must spend money on and we should not expect that they do it as well as a business with its neck on the line.

[Chris]

But one of those is not economic growth, the generation of wealth, and that's the question here.

On another forum, I argued this out with a liberal who wanted to know, if he spent a dollar on a candy bar and that stimulated economic activity in the candy industry--and he gave a decent Read's "I, Pencil" explanation of that, and seemed to understand the Bastiat seen/unseen argument--then why wouldn't the government's spending the same dollar have the same effect?

[Conley]

But one of those is not economic growth, the generation of wealth, and that's the question here.

On another forum, I argued this out with a liberal who wanted to know, if he spent a dollar on a candy bar and that stimulated economic activity in the candy industry--and he gave a decent Read's "I, Pencil" explanation of that, and seemed to understand the Bastiat seen/unseen argument--then why wouldn't the government's spending the same dollar have the same effect?

Well it goes back to the same thing. The government probably took about $1.50 from people in the form of taxes, wasted forty cents of it and then over paid $1.10 because it wasn't worth it to them to get a deal. Actually they probably also borrowed the money to buy the candy bar, so tack on extra money for the interest on the bonds.

[Chris]

Yes, there are additional transaction costs in redistributing the money. And borrowing is just a tax on future taxpayers who must pay it back with interest.

But there are additional problems. This liberal subjectively valued a candy bar. I might value a slice of apple pie. You might value a new shirt. Central planners cannot possibly know these things. We end of with General Motors Folks Volt that no one wants to buy but everyone has spent millions, billions on already.