Wednesday, September 7, 2011

Government spending doesn't create jobs


Hempy said...

As usual, you don’t know what you’re talking about. 75% of Humana’s business comes from government. That’s government spending creating and sustaining jobs.

Ever heard of defense contractors? More government spending. Highway construction with private contractors? That’s more government spending.

Paid military personnel? More government spending. Paying other federal workers? More government spending. Those jobs are all created by government spending.

Government service contracts? That’s more government spending. All of which creates jobs.

Being the Ayn Rand atheists that you are, like her you reject principles of capitalism that money in motion is what creates jobs. The source of the money is immaterial. Money in motion creates jobs.

As Alexander Hamilton wrote in Federalist Paper 30,

“Money is, with propriety, considered as the vital principle of the body politic; as that which sustains its life and motion, and enables it to perform its most essential functions.”

It’s tax cuts for the wealthy that kills jobs. Mitt Romney’s plan offers more of the same. It sucks trillions out of the pockets of working Americans and given to the wealthy few to hoard thus dragging down the economy.

Rich_Uncle said...

Spending does not grow the economy, regardless of whether it is spent by government or consumers. If it did, we could grow the economy by having each and every one of us spend our way to prosperity.
What does? Wealth creation. Say I invent a new widget that costs me $1 to make. I sell it for $10, and it saves the consumer $20. I've just created $9 in wealth for me and $10 in wealth for the consumer. That's how the economy grows.
It's easy to disprove the suggestion that "money in motion" grows the economy using a similar analogy: take a product that costs you $1 to make, sell it for $1, and tell me how much your own economy improves by moving this money around. Multiplying this "money motion" by 300 million Americans doesn't change the math.
As I increase my own wealth and the wealth of my customers, both of us spend more. We naturally increase our standards of living. Statistically, there is a correlation between spending and economic growth, but the connection is not that spending causes economic growth. Instead, both are effects of the same root cause: wealth creation.
Very little of what government "buys" creates wealth. Government spends money on projects that private investors decline to finance because they do not have a sufficient return on investment. In other words, government only spends money on activities that fail to create wealth!
Here are two commonly-used examples: Other than toll roads, highways create wealth for no one. We cannot expect the economy to grow from building random highways to nowhere any more than it would from paying someone to dig a ditch and fill it back in. Military equipment is primarily used to destroy wealth, albeit the wealth of other governments and citizens of other countries. The military has considerable benefit, but growing the economy isn't one of them. If it did, North Korea would be the economic powerhouse of the Pacific Rim.
At the end of the day, dollars "invested" by government create far less wealth than would those same dollars if they had been invested in financially-prudent activities by the taxpayers or lenders who sent them to government. The net result of government spending is actually a DECREASE in the rate of economic growth that could otherwise be attained.

Hempy said...

$1 spent in the local economy creates $7 of additional money in the economy. That's what grows wealth.

You tell Humana that the 75% of their business that comes from government doesn't grow their wealth. Why else do you think thet the Bluegrass Policy Blog supports private insurance over a government program?

Today, money is largely digitized numbers on a computer screen. Yet that constitutes wealth by today's measures. Your comment failed to even come close to defining what wealth is.

If it suffices as a medium of exchange that's wealth. It doesn't matter if that wealth was salt as in the Roman economy, or paper currency in the US economy.