Politics and economic reality, Part 1

I've posted several times about the misguided, fiscally disastrous economic policies being followed by the US Government (in both current and former administrations). Reader A. K. e-mailed me to ask what I thought was necessary to fix the problem, not in terms of fiscal policy only, but in terms of what role government should play in economic activity as a whole.

That's a very good question, and it's one I'll try to answer in a number of posts over the next few weeks, as I have time to write them. Obviously, I'll have to set out how I see things, my personal political philosophy, if you will. My answers will come from within this framework.

This first article will focus on the size of government in economic terms. How big should it be? Your answer will largely depend on your political outlook. If you're primarily focused on the individual, rather than the group, you'll tend to believe that government should be as small as possible, taking care of essential needs, but leaving the rest to private enterprise. If you're more group-focused, your approach will be that of a statist, saying that government should be big enough to provide for basic human needs across a broad spectrum. Some try to re-cast this into divisions like 'conservative' versus 'liberal', 'capitalist' versus 'socialist', and so on: but those are a bit artificial. After all, so-called 'conservatives' or 'capitalists' can spend just as much taxpayers' money as their 'liberal' or 'socialist' opponents! We have abundant evidence of that over the past couple of decades in US politics.

I'm very much on the side of smaller government, and the primacy of the individual over the group. I hold firmly that when it comes to inalienable rights, a group has no rights; only the individual does. (Remember, the Constitution and Bill of Rights do not, repeat, do not 'confer' those rights upon us; they merely recognize them, and acknowledge that they pre-exist the Constitution.) Anyone who tries to work with and for the interests of the group inevitably comes to a point where 'the greatest good of the greatest number' runs head-on into the rights of the individual who is or will be disadvantaged by what's good for the group. In my book, the individual's rights generally trump any effort by the group to take what's his for their benefit, be it money (in the form of taxes), land, goods or services. The individual should be inconvenienced as little as possible to provide what is essential for the State; national defense, the common good in its essentials, etc. Anything beyond that is outside the 'essentials', in my opinion. Matters such as health care, welfare, social security, etc. I leave to the individual to arrange. For those who can't provide them on their own, sure, there's room for some form of help; but that properly belongs in the realm of charity, not enforced taxation of the productive to indefinitely support the unproductive (which is what we have now).

Having clarified that, I think the size of government can be defined as the proportion, or percentage, of gross domestic product that it should consume in its operations and the services it provides. I think there's abundant historical evidence to prove that the less a government consumes, the better for the economy. Think of it this way. If there are a hundred dollars in circulation, they can be used to buy goods and services, invest in new means of production, and so on; or they can be used to pay bureaucrats to oversee rules and regulations that are imposed on society. The latter produces no new income, no profit, and therefore generates no additional economic activity. If twenty dollars out of that hundred are consumed by government, at least it leaves 80% of the gross to be used more profitably. If forty are consumed by government, the profitable proportion is much lower. You get the idea?

This is summed up in a very interesting graph known as the Rahn Curve. It was developed by Richard Rahn, former Chief Economist of the US Chamber of Commerce. (It's very similar in concept to the Laffer Curve, which applies to taxation.) Perhaps the best detailed analysis of the Rahn Curve is published by the Center for Freedom and Prosperity. It can be found here. I recommend it to those with an interest in government and economics. A simpler explanation is given in the video below, which I recommend to everyone, not just those with a deeper economic interest. It's very important.

I hope you took the time to watch that video; it explains in a nutshell how the growth in government spending as a percentage, or proportion, of gross domestic product inevitably leads to a decline in the latter. In other words, the more government spends, the less productive and the more inefficient will be the economy as a whole. That's a foundational principle of economics that most of our politicians have either forgotten, or chosen to ignore.

To apply that to the political choices facing us right now, I think we need to ensure that we elect politicians who are aware of this fundamental economic reality, and who will undertake to observe it in their legislative actions and political leadership. If they're of the 'tax-and-spend' variety, they have no clue about economic reality, and should be rejected. If they believe that government should spend what is essential, and wean itself from all other responsibilities (thereby lessening the share of gross domestic product that it consumes), I want them in office. Those of a more statist bent will disagree, of course, but that's their right and privilege. They won't get my support or my vote.

Note, too, that I don't cast this in terms of political parties. I regard both the Democratic and Republican parties with a jaundiced eye. Many, perhaps most, of their elected politicians aren't worth the powder it would take to blow them to Hell. They're self-centered, focused on what's good for them and their party rather than what the country needs. The sooner we throw out all politicians of that ilk, irrespective of their party, and put into office those who understand economic reality and will be responsible representatives of the people, the better. I'm not going to worry about what party they belong to - it's the individual who interests me.

What say you, readers? Anything to add to the discussion so far? Let's hear from you in a comment.

Peter