I have said it before, and I will say it again: The government doesn’t create jobs. They take money from one person, and give it to another. That’s not job creation; if anyone else did that, it would be called theft. So why do governments around the world insist on “stimulus spending”? Two reasons: governments justify their existence by spending, and they still believe in John Maynard Keynes.
If the president, or prime minister, or whomever was to say “government is a waste, I’m cutting it to the bone”, he would be effectively terminating his own job. Conversely, the more he spends, the bigger the government becomes, and the more power he has. Would you rather be the CEO of a million dollar company, or a billion dollar company? Obviously the bigger the company, the more power it has, and the more powerful is it’s leader. Government grows to increase the power of the people running in it.
It would take a leader of great intestinal fortitude to actively cut the size of government. That would mean fewer jobs for his cronies, less spending, and less power. No-one gets in to politics to destroy the very institutions they want to control, so government will never shrink on it’s own.
Of course they justify ever growing government spending by quoting the work of John Maynard Keynes, the early 20th-century economist. Keynes essentially believed that individual people were stupid (he referred to their behavior as “animal spirits”), but that the government was smart, and therefore the government should be making all of the decisions. In boom times, the government would spend less. During recessions, the government would deficit finance and spend more to stimulate the economy, and end the depression.
There are two problems with this theory.
First, it doesn’t work in practice. Have you ever known a government to spend less? During boom times they spend a lot, and then during a recession they spend even more. When boom times return, they keep spending. Spending is never cut, debt remains forever (or at least until the currency collapses).
Second, Keynes theories have never been proven to actually work. That’s right, there is no proof that anything Keynes has proposed actually works. There have been no independent academic studies proving that governments are smart and people are stupid. In fact, all of the evidence would appear to prove the exact opposite.
Keynes supporters will give you a line of drivel about the “multiplier effect”. The government spends a dollar, but that creates, say, $1.50 of economic activity, as that dollar buys goods and services throughout the economy. The $1.50 in new economic activity is, according to Keynes supporters, more than enough to repay the original $1 in government borrowing, and so the economy is now better off by 50 cents. The theory, of course, is ridiculous.
In real life what actually happens is that the government borrows $1, but of course with interest over the course of many years will end up paying back $2 or more. The government creates a new program to spend the dollar, so a lot of the $1 is spent on government bureaucrat salaries, offices, supplies, and other expenses that have no value to the economy. Perhaps 50 cents filters through to the real economy, where it is spent, and perhaps generates 20 cents in new tax revenue. Hardly seems possible that 20 cents in tax revenue will be enough to repay the $2 in debt and interest created, does it?
Of course my example is simplistic, but you get the point. The government has nothing to lose, nothing at risk, so they can spend my money wherever they want. That’s in direct contrast to a private business person, who risks everything, and is therefore highly motivated to keep expenses low, and to earn a profit. And that, of course, is the secret to recovering from a recession: get government out of the way, and let private enterprise decide where risks should be taken, take those risks, and actually expand the economy.
And yes, I realize that if it wasn’t for the government mucking in the economy we wouldn’t have recessions in the first place, but that’s another story for another day.