Core differences about how society spends that really need to be understood.
Government spending is fundamentally a different animal than private spending!
Private spending is the essence of the freedom of choice. When you mull over the decision to purchase an item, you are making a very personal decision based on your current income or resources, the prices of the other goods and services you currently purchase or may purchase, and your personal tastes, risk preferences, needs, and wants.
You make so many mental comparisons and tradeoffs when you consider a purchase that they truly cannot be listed. And then you live with the consequences of your choice, for better or worse. If bad, you learn. If good, you enjoy. And the process repeats itself every time you make a buying or investing decision, updated with new personal, private information on the circumstances, choices, and preferences of the individual.
Government spending, on the other hand, involves a huge middleman who first decides that they do not approve of our spending choices. If they did, there would be no need for government spending. (Reflect on that because it is such a fundamental point.)
So, they decide that they don’t like how we decide to spend our income, and they take income from private business and individuals (out of business income, which also generates the wages from which individual taxes are collected) in order to spend it on goods and services that they think we should have bought, but didn’t. And in the process, they shrink the disposable income available to support our private decisions on spending and saving.
The motivation behind government spending is not what we decide is good for us or preferable. It is what some collective group of people “out there”….in other states, on certain Congressional committees, working for certain causes or who have particular political points of view…feel we should be purchasing.
That is extremely powerful, in part because no one individual behind the government spending is really accountable for any particular purchase. It’s “purchases by committee.”
And the individual is essentially powerless to change it if they disagree with the particular spending programs that government authorizes. I know. I strongly disapprove of the current government spending programs and am powerless — other than this blog and my one vote — to do anything about it.
Now I understand that there are some goods and services that are necessary for the safety and security and functioning of our country that would not be provided if left to the purview of private individuals and businesses, like defense, highways, and other public goods.
But there must be a limit; a strict, unforgiving limit, or we slide along the spectrum away from a free society with limited government spending toward socialism, where all spending is determined by the government and individuals are no longer self-determined. Once people are dependent on the government to make their spending choices for them, there is very little chance of ever turning back.
We have proof all around us. When is the last time a program was actually cut in any real sense? And when state budgets are cut, when the arts get less funding, when the “clunker for cash” program is suspended, there is an uproar. Some group that was getting a handout, that was getting a free ride from our tax dollars that we would have used to purchase some good or service that we preferred or to invest in our future or to start a business or to donate to charity….that group will complain loud and hard about the cutback in a program that should never have been authorized in the first place.
By Sherry Jarrell
Learning from Dogs 
We elect congressmen to spend our money for certain things such as military, highways, and generally, things that benefit the commons. We expect them to spend responsibly and when they don’t, we have elections to put people in who we think will.
The problem in the past 30 years has been deficit spending — especially with Reagan and both Bushs. Now we’re spending almost as much on interest on the debt as we spend on the military, with much of that money going to communist China.
LikeLike
Ben,
As an ex-Englishman (now non-resident) the statistic that has me transfixed, as in the headlights of the oncoming train, is the fact that UK government spending is about 50% of GDP. What a great way to wreck a great country!
Paul
LikeLike
Hi Ben,
Yes, I agree — I much prefer small govenment, as a rule. That said, it is not always just the level of government spending relative to GDP, but what the government is spending the money on. Reagan raised spending on defense, which I think is important. Spending levels under Obama are unsustainably high; and go, not towards public goods like defense and highways, but toward goods and services that should be provided by the private sector. In my view, this is very bad for economy and our freedom.
Sherry Jarrell
LikeLike
Sherry:
So please do not just accuse “government”. Some goods and services are not provided by the private sector, because they do not interact with the private motive.
Rome tried the concept of private army, and it led to the death of the republic. Health is another activity that do not respond well to the profit motive (disclaimer: I both profted and used private health, but also public health, with different goods and services targeted). You sure would not like the firemen and the police to service you only after they got amply rewarded.
So the concept that :”Government spending, on the other hand, involves a huge middleman who first decides that they do not approve of our spending choices. If they did, there would be no need for government spending. (Reflect on that because it is such a fundamental point.)” is not universally appropriate.
Now that government spending is close to 50 % of GDP in major Euro powers is a statistic that would look less frightening, when it is considered that entire sectors of the economy of the USA is only private in appearance.
Why else could every single subsonic B2 bomber cost more than a billion dollars (answer: because it was a socialist program for Northrop)?
The B2, of course, as the Raptor, F22, have proven useless (B2’s were used once ot twice in Afghanistan, F22s, never).
A lot of the “private” health care system in the USA, and the “private” banking system are government supported (and it’s not all Obama: don’t forget the USA long had the only full mortgage deduction program in the world). I could give pages of examples such as these…
PA
LikeLike
HI Sherry,
Your very interesting post describes two kinds of spending. However, in general, it seems to me that there are four kinds of spending and I wonder whether could offer any opinions on the other two.
The four are the permutations of spending one’s own money or other people’s money and of spending on oneself or on other people.
On this basis you describe: spending one’s own money on oneself, private spending; and spending other people’s money on other people, government spending.
But what about: spending one’s own money on other people, for example charity; and spending other people’s money on oneself, for example politician’s expenses. One of the reasons that this is relevant is that in the UK, and no doubt other countries, services that might be expected to be provided by the government are being funded by charity.
Charities have long provided services at (for want of a better description) the lower end of the spectrum, for example with soup kitchens for the homeless, but nowadays also provide services at the upper end.
In the UK, the lifeboat services for the whole nation (presumably provided in the US by the US Coastguard), helicopter ambulance services in many parts of the country and some of the most expensive diagnostic equipment in hospitals are provided ENTIRELY by voluntary contributions from the public.
Although there are apparent disadvantages, one of the advantages of this arrangement, particularly for the emergency services funded in this way, is that they are not subject to the whims of politicians and are masters of their own destiny.
Let’s not get started on politician’s expenses!
Nevertheless, I’d be interested in how you view these other types of spending.
John Lewis
LikeLike
John:
Private contributions are subject to the whims of private individuals, of which politicians are examples of. this is the paradox; the very people who scream that the private sector will solve all seem to overlook the fact that precisely the problem has been that politicians have behaved all too much as private individuals, instead of the public persona they are supposed to be. What we need is more public, less private.
Banking is a blatant example: a few private individuals have harnessed for their own profit the economic and financial might of the West.
The entire subject mystified Socrates; how to marry democracy, private initiative, politics, and competence. The solution, elaborated progressively from the Roman administration and the ensuing European Middle Ages, was to develop independent public, and democratic institutions. Justice ought to be an example of it. Public health services is an example. Armies another.
That politicians and financiers, and their somber entanglement, have to be reigned in at this point there is no doubt. Such is the task of the polis.
PA
LikeLike