The Right Stuff

So what is the “right” level of government spending? Obviously, we want the government spending to be done efficiently. We don’t want government spending to become inflationary. Keep in mind — the public purpose behind government doing all this is to raise an army, operate a legal system, support a legislature and executive branch of government, promote public infrastructure, promote basic research, etc. So there are quite a number of tasks that even the most conservative voters would have the government perform.

Ultimately, the ‘right amount of government spending’ is an economic and political decision that has nothing to do with government finances. The real ‘costs’ of running the government are the real goods and services it consumes; the real cost of the government using all these real goods and services is that those resources would other wise be available for the private sector. So when the government takes those real resources for its own purposes, fewer real resources are left for private sector activity. What matters is that taxes are set to balance the economy and make sure it’s not too hot or not too cold. And government spending is set at the ‘right amount’ to provide the requisite services and full employment. Getting caught up in the mythology of “financing” considerations or arbitrary self-imposed constraints with no bearing in any economic theory at all is the wrong path. That way lies Spain. Is this the future we want for the US?

via “Spain and the EU: Defict Terrorism in Action” « naked capitalism.

The problem is that governments don’t restrain themselves to providing essential services. Expansion into all manner of activity limits the private sector and the progress only it can bring. And somebody needs to explain how government can cause full employment. This seems like magical thinking.

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