Sunday, July 18, 2010

Spending Hawks

A certain type of right wing economist likes to worry that the real threat of government spending is not deficit but spending itself. John Tamny puts it this way:

But what should worry us is the total level of spending by our federal government which serves as a massive tax on real economic activity in the present. Applying Fredric Bastiat's "seen and unseen" to nosebleed government outlays, neither the seen nor the unseen induce optimism.

The "seen" in this case is gag-inducing waste including but not limited to Cash-for-Clunkers, corporate welfare of the bailout variety, and earmarks of recent vintage such as The Brige to Nowhere. The unseen, however, concerns the Microsofts, Intels and Googles that will never see the light of day thanks to an allegedly benevolent political class so eagerly vacuuming up capital that if left alone might find its way to ventures that are worthwhile.

Unseen is how much higher our wages would be if our federal minders weren't spending over $3 trillion per year, and how very different and varied our collective employment outlook would be if our productive gains stayed in the private sector as opposed to the bloated government sector. It's said that government spending is compassionate, but what is compassionate about politicians spending money not their own?

Bastiat is something of a saint to this school of economist, but the assumption that his idea, insightful though it is is relevant to the question of government spending in general is hardly obvious. The point is that government spending uses up resources of the economy that might be otherwise employed. Those bucks spent by the government on a new guided missile destroyer might have been used, for example, to build an even bigger luxury yacht for Larry Ellison. Bastiat, writing in 1850, had no idea of Keynes or of a failure of final demand, so we don't know how he would have felt about spending in time of depression. Those who choose to ignore the Keynesian argument today lack his excellent excuse.