Against State Spending: More they Spend, More YOU Lose!

Keynesian allies of central banking make the preposterous claim that higher State spending boosts "aggregate demand" - and that this is the way out of a "recession." To these Keynesians, State spending ADDS to "aggregate demand." If consumers are not spending and if investments are not forthcoming, they say, it is State spending that must lead the way. This will lead to "full employment" - of labour, that is. The textbooks are full of all this.

As we saw yesterday with Sudipto Mundle, professor emeritus of a State-owned institute of "public finance," no one asks: Where is the money coming from? Is it being borrowed, is it from taxation, or is it being printed? Professor Mundle himself begins by quoting total spending - with awe, for the numbers are staggering:

This financial year, starting April 1, 2011, the central government will spend Rs 12.6 lakh crore on various public services and development projects. Adding to that the expenditure of the state governments, total government spending in the country will be in the order of a massive Rs 36 lakh crore...

Since most people "think" like Keynesians, they will read these staggering figures and believe that their own businesses will see improved prospects - after all, there will be so much money floating around, demand for everything will rise, won't it?

So let's think a little harder. If the money is printed, it will cause inflation - and all ordinary people will lose. If the money is borrowed, private investors will not get to borrow it - and invest. The State will just take it and blow up the money, producing nothing - and repaying it out of future streams of taxation. Again, all ordinary people will lose. Lastly, if the money is from current taxes, surely we could have "stimulated the economy" by spending it ourselves! Do we need ministers and baboos to spend our money for us?


Think!


To help you do so, here is a Mises Institute article of today titled "Government Spending Is Bad Economics" by Jonathan M. Finegold Catalan. I quote excerpts from his conclusion:

Government spending is not a method of improving the market's efficiency, nor is it a method of employing allegedly idle resources. The result of government spending is foregone opportunities; the cost is the gain in wealth that would have occurred had economization been allowed to take place, minus the outcome of government spending. One can easily conclude that the notion of positive countercyclical fiscal stimulus is highly suspect, and that a better alternative would be to allow individual market agents to economize economic goods based on their own utility scales....

Government, in fact, is a large disequilibrating force on the market. It forcibly redistributes economic goods, removing them from a process of economization and instead investing them toward the realization of less important, or less preferred, ends. In other words, it distorts the continuous process of coordination....

Overall, we can safely conclude that government spending causes more harm than good; it redistributes the means of production toward the attainment of ends considered inferior by the individuals who make up the society that government is allegedly acting to improve.

Get it, dude?


We'd all be much better off spending (or saving) our own money.


Professor Mundle openly admits, in his opening remarks, that the common man in India thinks State spending is a colossal waste of resources:

There is a general impression, reinforced by daily headlines about new mega-scams and our individual experiences of poor performing government agencies, that the waste of public resources is colossal.

No roads, No highways. Shoddy railways. No electricity. No running water. Nothing.

Excise license, driving license, this permission and that and the other, fiat paper money, and cops - that's what we get: the danda.


This State produces no "goods"; only "bads."


So, never believe that soaring State spending is anything even remotely "good." It is BAD.


Very bad, indeed.


And if any Keynesian still hassles you with arguments about "full employment of labour" - then refute him with the section titled "Idle Resources" in the above article by Catalan. 


Catalan cites WH Hutt's The Theory of Idle Resources. I am a great admirer of the late Professor Hutt, having studied many of his excellent works. He is a must read for all serious economists. His books on trade unions, Say's Law of Markets, Immigration, the Politically Impossible and others are essential for all serious minds. You can download Professor Hutt's The Theory of Idle Resources here.


WH Hutt came from a "working class" background. While at the LSE, he attended a guest lecture by Ludwig von Mises - and "broke on through to the other side," realising that socialism harms the whole of society, working class included. Hutt's works cover areas not covered by any of the others - Mises himself, Hayek or Rothbard. Hence, reading Hutt is a must. He is another of those who richly deserved the Nobel Prize. Professor Hutt taught in South Africa.