Wednesday, February 10, 2010

Super Bowl of Government Spending--A Zero Sum Game

A zero sum game is one where someone wins at an other's expense. The Super Bowl is a zero sum game. The Saints won. The Colts lost. One winner, one loser.

We would do well if our President, Congress and citizens understood government spending is, too, a zero sum game. A redistribution of wealth from one group to another. The government does not "create" jobs in the sense the private sector does. The government taxes or borrows to fund jobs or projects taking the money from those who earned it and presumably have their own, better, use for it and redistributing it somewhere else with all the attendant costs of government administration.

Today's Wall Street Journal editorial page summarizes Obamanomics so far: "Stimulus Plan A didn't work to create jobs or reduce unemployment. That was the $165 billion of tax rebates and money for states in February 2008. Plan B flopped too. That was last February's stimulus that has devoted $862 billion into mostly government programs. The unemployment rate climbed steadily until last month, and the main lasting impact has been nearly $1 trillion added to the national debt." And now the economic illiterates in Congress are proposing an $85 billion jobs bill which contains many of the same policies as the failed stimulus--Plan B.

Government stimulus does not stimulate for the reasons I wrote to you last year. Recall the following from James Payne's 1991 book, "The Culture of Spending:"

"Unfortunately, this is culture-of-spending ideology, not sound economics. When the government purchases what people can buy for themselves, two additional costs are introduced (emphasis mine): the cost of taxation, including the distortion of incentives governing production; and the cost of administration, including the distortion of incentives governing consumption. Calculating these costs is quite difficult but preliminary estimates suggest that for each dollar the federal government recycles through the taxation-subsidy system it wastes more than one additional dollar."

He goes on to explore the source and precise amount of this waste citing research studies on the taxation side of the equation (cost is about 60 cents for every dollar collected) and the disbursement side (50 cents for each dollar spent). The "bureaucratic rule of two." Government production of a typical good or service in 1991 cost twice as much as the same items produced in the private sector.

Last night I attended a presentation by senior staff from one of the largest, most liquid and prudent banks in the nation. The senior credit officer showed a chart of lending growth at the institution. The chart maintained a fairly flat line until the end of 2007. Beginning in 2008 and through 2009 lending rose at a steady pace. President Obama is telling us the problem with the unemployment rate is bank's aren't opening up credit to small business. Wrong, Mr. President. The problem is small businesses are paralyzed by current and proposed tax hikes in every nook and cranny of our lives. Business owners are frozen by confiscatory government policies that propose to take from the producers and give to the unproductive. And the government's reach doesn't end upon death--they will have theirs again through an onerous and, at the moment, entirely unclear estate tax.

Until Congress and the President declare a truce with small business and, therefore, the American people the Zero Sum Game will continue.

No comments:

Post a Comment