On Economic Stimulus, part 2

(I have been having some fun poking gently at conservatives at my friend (and relative, via my son) Jack’s site, getreal.vox.com, and neglecting my own blog – but I don’t have enough argumentative weirdos on Quarkscrew to bring out my best! Anyway, I decided to recycle a couple of my longer comments there in order to share my views here on economic stimulus and health care.)


The government borrows by selling securities, T-bills and the like; this has its own problems of course, and we’ve borrowed far more in this manner than we should have, mostly from foreign investors. This administration inherited a lot of that kind of debt, especially owed to Pacific Rim banks. If you want to spend a lot of money on things like wars which don’t create wealth, you need to increase revenues, which generally means taxation of your citizenry, individual and corporate. If you elect to borrow from abroad instead, as Bush did, then you kick the problem down the road but eventually it has to be paid with interest.

If we’re to be able to do that, we need more revenues. That means more taxes have to be collected. The only way to do that *without* permanently impoverishing the country is invest in creating conditions which allow our economy to meaningfully grow, and in the short term that means, yes, we have to increase some kinds of directed government spending (and reduce others).

Yes, it’s true that our government takes funds and re-allocates them, rather than directly controlling the means of production. Nevertheless, this notion that government, because it collects taxes and redistributes them, is the enemy of free enterprise is ridiculous. Free enterprise works a hell of a lot better when a government does this than when there is no such government, as long as the government is doing so competently.

There are things which government can do more efficiently than private enterprise can. Infrastructure is one. The building and maintaining of nationwide (or statewide, or even county-wide) highway systems is not something that private businesses are likely to tackle in the first place, and not something they’re liable to do well other than in their immediate vicinity; at best you might end up with a scattering of minimal roads of highly variable quality, and a patchwork of toll roads.

And yet the benefits to the economy as a whole of having a coherent network of quality roads is indisputable; countries with central governments strong enough and motivated enough to build such systems massively outcompete those who don’t or can’t. Because the enormous returns to the economy are distributed, it requires a system of more or less universal taxation and reinvestment by government. Those roads won’t be built without such a system, and yet the building and maintaining of them provides employment to private firms, and their existence allows and makes practical all manner of private businesses which would not be economically viable without them.

Government also provides a central planning and control facility for other natural monopolies such as power lines, sewage, water, and communications conduits. Even when the implementation is given over to private companies, government provides the necessary rights of way, imposes interoperability standards and in return for regionally granting these natural monopolies requires the extension of those services to the ‘last mile’- the remoter areas which aren’t as immediately profitable.

This, too, redounds to the benefit of the larger economy; the phone company may make a marginally smaller profit because they had to extend service to Podunk (obviously still worth it to them though!), but Podunk now has the ability to market hand-carved knugenfugels to pretentious New York cafes.

Besides such physical structures, government provides services such as police, fire control, and emergency medical services. The commonly provided protections against crime and natural disasters allows the development of communities which simply do better than communities which must rely on the ability of each business and individual to hire private firms to protect them.

Although I have been an employee far more than otherwise, you would be incorrect to assume that I have never been self-employed. A friend and I did start a small home-based business. It didn’t flourish, but the blame for that falls squarely on our lack of experience and inadequate capitalization, not on excessive government interference. In fact, it would not have been possible for us to even start without all the pre-existing communal infrastructure provided by our government, such as those detailed above and others less obvious.

A final point: had we kept going, we probably would have had to offer some kind of health insurance to our employees, or at least ourselves; how many small startups do you suppose fail under that burden that would otherwise have succeeded? How many would-be entrepreneurs don’t take the chance because they need adequate health insurance and they’ll lose it if they don’t stay tied to the job? I would be very much more hesitant now that I’m a father to risk it.

Universally available, affordable and reliable health care would be a spur to entrepreneurship but it’s not to happen without government involvement.

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~ by B.T. Murtagh on July 21, 2009.

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