Government spending not an economic solution

info@islandpacket.comDecember 28, 2012 

A reader recently wrote that my desire to cap state-government spending betrays ignorance of the role government plays in the economy. "When the state spends money, that money goes into the economy to pay salaries, purchase goods, pay for services, etc.," he says. "It is the same as when I spend money."

Of course government spending affects the economy. And when the government spends taxpayers' money on the essential things only government can do, the effect is positive. But when government decides, as it always does, to do more, it is a mistake to assume public and private spending are the same.

Land, labor and capital-goods factors are all scarce, and society benefits when they are put to their most productive use. Private individuals, guided by the free market to produce what consumers need, always spend money more productively than politicians and bureaucrats.

Another reader disputes my contention that state government spends too much, conceding it may have increased 19 percent in the past three years, but noting it has yet to reach the historical high of (pre-recession) 2007. I reject that year of bloated spending as an appropriate benchmark.

Moreover, that reader fails to consider the second (and larger) category of state-government spending: "Other Funds," which has ballooned from $4.8 billion in 2002 to $8.2 billion in the current fiscal year.

Yes, we face challenges. But it is a mistake to assume that politicians and bureaucrats could or would be omnipotent problem solvers, if only they had more money to spend.

State Sen. Tom Davis


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