Monday, August 11, 2003

Capitalism: Taxing Yourself into Prosperity

My esteemed colleague Daryl Cobranchi debunks a particularly nasty anti-capitalist theory of wealth creation:
Dennis Redovich's latest weekly column is particularly inane. He first predicts a world-wide depression similar to the Great Depression. No data are provided to back up that prediction (NOTE: data "are", right?). It then goes from bad to worse, promoting g-schools as an engine of prosperity. Or, more precisely, promoting the money spent on the schools as creating wealth.
Government spending on programs that benefit largely low and middle class income citizens for education, health and welfare is the greatest stimulus for an expanding and prosperous economy and “also” improve the quality of life for individuals and the entire population. The Milwaukee Public Schools is the largest employer in Milwaukee, and with a budget in 2002-2003 of more than $1 Billion is the largest single source of money for consumer spending in the entire southeastern area of Wisconsin. Public school systems and universities are the largest employers in many communities in the State of Wisconsin. (Education jobs are stable and better than average paying jobs. Better in most cases than the jobs created with millions of corporate welfare that may be gone tomorrow when someone offers a better deal)

Sure, except for the fact that the money for those high-paying education jobs came from TAXES. Last time I checked, taxes were a drag on the economy. So, schools are just a form of welfare for educrats? Good to know. The rest of the column is no better. Give it a click only if you want to see how the other half thinks.
Redovich, of course, does nothing more than reiterate the core of Keynesian economics—government spending drives the economy. While that theory has been wholly disproven at every turn, the Keynes mantra continues to hold sway over government officials, especially the permanent bureaucracy that depend on high taxes and spending. Indeed, the most popularly reported measure of the economy, the Gross Domestic Product (GDP), reflects an anti-capitalist bias, as Club for Growth's Stephen Moore and Phil Kerpen explained last week in the Washington Times:
The headline-grabbing number of 2.4 percent growth, immediately applauded throughout the media as strong, is about double the real rate that the private economy grew. While the private economy grew at about 1.3 percent, the federal government component of GDP increased by a staggering 25 percent, the largest quarterly increase in more than three decades. The increase was due almost entirely to the high cost of the war in Iraq. But even domestic agencies saw growth in their budgets far surpassing private sector growth.

The important word here is "cost." Wars are a cost, not an asset.

You fight wars because you have to — because there are bad people in the world. But to suggest the war was good for the economy would be as dimwitted as suggesting Saddam Hussein deserves a medal of honor for helping revive the U.S. economy.

Defending U.S. interests militarily is a legitimate and necessary function of government, but it eats up resources and reduces growth, rather than enhancing it. So to a large extent, the growth reported this past quarter is a statistical mirage. The way we currently measure GDP makes billions of dollars spent on military expenditures look like productive economic activity.
The war example is actually quite telling. After all, pro-government spending leftists rarely call for more military spending to drive the economy, even though military spending arguably makes the GDP-with-government go up a lot faster than than it would with spending on education and public welfare.

Moore and Kerpen suggest, quite sensibly, that future GDP be calculated solely as a function of private sector spending. Such an act would deflate a lot of the pro-government spending bias now seen in the media, since GDP would no longer be subject to wholesale political manipulation. It certainly won't solve the problem of big government, but an honest GDP will at least allow the people to receive better information.

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