There is no more persistent and more influential belief than the belief that government spending is beneficial for everyone. In every corner of the globe, they are presented as the solution to all economic problems. Is the industry partially stagnant? We can encourage it through government spending. Is unemployment high? Blame the “insufficient purchasing power of the people”. The remedy, of course, is obvious to increase government spending. Using the Value Network and Collaboration website is perfect now.
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All it takes to remedy the situation is for the government to spend enough to make up for these “shortcomings”.
A vast literature is based on this fallacy, and, as is often the case with such doctrines, it has become part of a complex network of mutually supportive fallacies. We cannot, at this point, investigate this entire network; but here, we can examine the mother fallacy that gave birth to this progeny.
Everything that does not come from the free gifts of nature must, in a way, be paid for. The world, however, is full of pseudo-economists who are full of plans to get something for nothing. We are told that the government can spend freely without having to tax, who can continue to accumulate debts without ever having to settle them, because “we owe ourselves”. Throughout history, all such beautiful dreams have always been destroyed by national insolvency or rampant inflation. We must simply say here that all government spending will, in practice, have to be paid for by taxation.
Yes, monetary inflation can be used to finance these expenses. However, monetary inflation itself is only a form particularly abnormal of taxation. Monetary inflation will generate two phenomena: redistribution of income from the poorest to the richest and price increases, a phenomenon that will also severely penalize the poorest. Inflation is a tax.
- For the sake of argument, we will admit here that each monetary unit spent by the government must be collected immediately or later through tax. Once the issue is considered in this sense, the supposed miracles of government spending will appear in another light.
- The government continually spends a certain amount to meet its current expenses: paying its employees, its bureaucracy, redistributing income and doing its ordinary public works. Such expenses will not be the scope of this article. I want to deal here with those public works considered as means of “creating jobs” or increasing the wealth of society, without which – some economists say – such enrichment would not be possible.
A bridge is built. Whether it is built to meet insistent public demand; whether it solves a traffic or transportation problem, insoluble in another form; if, in short, it is more needed by taxpayers collectively than things that they would individually spend their money on – if it had not been taken from them through taxes – then its construction can be usable (although it is virtually impossible to determine that absolutely all taxpayers really want this bridge).