The federal government is the biggest buyer in the world. Stop and think about that.
To the vast majority of economists, the federal government’s gargantuan buying footprint is economically stimulative. See how GDP is calculated if you’re confused about a measure (GDP) that vandalizes reason.
Of course, the fact that economists deem government consumption stimulating speaks to a problem of gargantuan misunderstanding within the profession. Missed by the PhDs who equate growth with government consumption is that the money government spends comes from somewhere. The somewhere is you, me, and the proverbial man behind the tree. Government can only consume insofar as we have less money to spend, and much more crucially on the matter of growth, reduced wealth to save. Lest we forget as economists do, investment borne of savings is the only way for an economy to grow. It’s a long way of saying that government spending is logically an economic somnolent.
Only for it to get worse. A truism of life that’s even embraced by economists is that no one spends the money of others as carefully as they spend their own. It’s a reminder that our federal government as size buyer of staggering amounts of goods, services and labor isn’t a market participant as much as it’s a market distortion. The spending of the money of others distorts the market’s message transmitted to producers.
One example of this, among surely many out there, is the formerly ubiquitous Blackberry phone/email device. On July 3, 2016 the U.S. Senate finally switched to AppleAAPL and Android smartphones, and away from Blackberry devices. Consider the year. 2016! Long after actual market participants had left the Blackberry in the dustbin, federal entities were still buying it.
All of which raises a question: might Blackberry still be a player in the smartphone space had government lacked its aforementioned consumption footprint? It’s not an unreasonable question. By transmitting false signals to the marketplace, and to Blackberry specifically, is it not unreasonable to speculate that the false signals imbued Blackberry with a false sense about a the market such that it didn’t shift quickly enough? To suggest that federal spending didn’t distort Blackberry’s negative evolution amounts to willful blindness.
Applied to the present, there’s a passionate debate going on about the future of U.S. energy. Some, including yours truly, deeply believe that oil and its byproducts quite literally make the world go ‘round. That without ongoing exploration for and usage of oil, the global economy as we know it will grind to a brutal halt, one that will have a profoundly negative impact on the environment.
Conversely, opponents of the above narrative view the ongoing consumption of oil and its byproducts as an existential threat to planet Earth. They believe a failure to act through reduced carbon consumption in the next few years will have permanent consequences that reveal themselves through unstoppable decline for our planet.
About who’s right, it seems the only answer is to leave it to the marketplace. That is so simply because government action is as previously mentioned anti-market, and it’s anti-market precisely because those spending and doing with the money of others are by definition transmitting false signals about how to get ready for what’s next in the market.
Keep this in mind as states known for oil exploration like Texas politicize the extraction of it. In particular, legislation is afoot in the Lone Star state to penalize financial institutions seen as unwilling to finance oil extraction, or hostile to it. Legislators in the state want to make municipal bond finance within Texas contingent on the embrace of and financing of fossil fuel activity. It’s a mistake. And those promoting the legislation should know why.
If government has the power to push businesses around, then the economy will suffer this power. Government heft isn’t borne of the marketplace as much as it’s borne of government’s taxable access to the income of the governed. Put another way, it’s not their money. But if they act as though it is, governments are capable of transmitting false signals to the marketplace about how to operate that will restrain our growth trajectory.
Which is why we can hope that cooler heads will prevail among lawmakers in Texas, but also in states like California that have already lost so many citizens to Texas at least partially due to aggressive government. Regardless of the ideological lean of governments, actions by them are not informed by the marketplace. And since they’re not, they negatively impact the people and businesses within their states that give those states life.
