It was said by some of those in support of President Biden’s Build Back Better plan that it would not cost a cent. Most recognize the foolishness of the statement, but a large fraction may not have comprehended the chief reason why. Many questioning the zero cost argued those managing the BBB programs would use borrowed money to fund designated public expenditures; that such funds with the added cost of interest must eventually be repaid through taxes. But this argument doesn’t really strike at the heart of things.
There is certainly a cost in the BBB plans approved by Congress, but it doesn’t reside in money printing or future debt repayment. The primary problem lies in the squander of scarce resources: labour, material and equipment, an activity at which government excels.
The MMT crowd loves to talk of money, of a government endowed with a sovereign currency printing up as much of the ornate paper as it pleases and spending accordingly. Others, cautioning against the perils of public debt, proclaim the accumulating burden a plague upon future generations. Concentrating upon the monetary or debt component diverts one from the true nature of the problem.
A community, desirous of prosperity, should endeavor to place precious resources into the hands of those who know best how to use them. Private actors and markets excel at meritorious distribution. If a firm or individual through loans or savings exercises their claim on resources, putting them to good and profitable use, the entrepreneurial spirit is rewarded, and many others enriched. If not, the market punishes the entrepreneur, depriving him of or sharply limiting further use of such scarcities.
Unfortunately, the U.S. federal government is a rare and contrary entity. Backed by a very productive citizenry, it may tax or print and spend in enormous amounts, commandeering vast amounts of resources without regard to how profitable or profitless their use. If successful, most are enriched. If unsuccessful, generally the case in that an estimated 80% of public expenditures go to waste, most are impoverished.
If the funds for such wasteful efforts are taxed, savings are depleted and, thus, capital for worthy economic endeavors. If funds are printed, government competes for resources by bidding up the price of labour, equipment and material, overwhelming and depriving more worthy rivals. In conclusion, it’s less capital for worthy endeavors with taxed funds, or higher costs for production with borrowed funds.
The now dead Soviet Union operated a centrally controlled economy with a very small private sector, generally a black market. It, like so many socialist or government dominated economies, failed because the bulk of resources: labor, material, equipment went to the state apparatus, to the government and military, and a scant remnant to the production and distribution of needed consumer goods.
I frequently recall the Communist Meat Shop. Inside, one would find a plenitude of managers, clerks, and laborers wandering about. Outside, one would find extensive lines of people clutching their vouchers or money. But what was the missing element in the Communist Meat Shop? There was little or no meat to be had. Supply was often meager and at Christmas scarce.
Many mistake an increase in the money supply as the cause of inflating prices. In reality, it is government assaults on worthy production through seizure of valued resources or regulatory constraints, regardless of whether funds are taxed or borrowed, that sends prices upward.
The cost of these government programs is clearly not zero. It is the massive squander of resources, of wealth and capital that impoverishes those in the present and, subsequently, squelches or acutely curtails the inheritance of future generations.
How may one remedy this ruinous waste of capital and resources?
The short term goal should be that government reduce its share of the economy to its pre-pandemic levels or ~ 37% whilst limiting or terminating regulatory constraints, especially those enacted to tame the Chinese flu.
The longer term goal is to limit government to worthy public enterprise, to the 20% of expenditures that provide benefits exceeding all costs.
It’s easy to say given millennia of failure in limiting government. However, there is a simple means to this end; One declaration should compel government to halt its relentless squander, but that is another article.
