| This
page will share thoughts about the myth of creating jobs through
government spending programs. |
| In
some countries, they have a "value-added tax" (VAT) instead of a
corporate income or sales tax. The cost of government is applied
to the difference between all of the economic "inputs" and "outputs" of
business. It is assumed that business should be taxed on the value
of what it does, as reflected by the difference between costs and
revenues, rather than by tracking whether or not the business claims to
be earning a profit or not at that time. Profitable or not, the
government gets its share of tax up front. |
|
Regardless of the fiscal policy merits of an income tax, value-added
tax, "fair tax", or any other approach to the funding of government
services, including the many obscure taxes which combine to conceal the
total cost of government, the VAT is useful to consider for one very
unintended consequence. |
| It
could just as easily be renamed the "Value Destroyed Tax". It
shows how much of the potential economic value added by any business in
the country is destroyed by government spending programs. The
businesses earn money by producing something which is worth more to
their customers than their input costs. Government proceeds to
take a very large slice of that to pay for whatever social services it
provides, whether or not that adds any significant value to the business
venture involved. |
| In
other words, private business creates wealth and jobs. Government
destroys wealth and jobs. Some of that value destroyed is
justifiably spent on common social needs - security, infrastructure, etc.
There is an obvious need for certain types of government services, and a
reliable process to pay for them. |
|
Spending even more on government programs, however, does not create more
productive jobs. It creates a larger tax burden on the productive
jobs. It destroys value creation by redistributing resources from
productive and efficient work in the private sector, where there are
competitive market forces and a strong profit motive to discipline the
process of adding value, to the public sector without any such
discipline.
In the public sector, there always seems to be some justifiable reason
to spend more on the latest good ideas for more social services,
regardless of whether or not the country can really afford them. |
The only market forces to control this are largely outside the country,
where it can affect currency rates and competitive trade as well as
private capital flight (i.e., trying to get money away from the growing
taxes, such as in tax havens).
In short, the basic constraint is the risk of economic collapse if the
cost of government finally becomes unsustainable. During economic
booms, that is of little concern, but that creates the temptation to
spend even more and thereby create even worse recessions later. |
|
Further thoughts to follow later... but don't expect the "economic
stimulus" to stimulate job creation, other than more government jobs |
|
January 29, 2009 - An
Inconvenient Truth: This is not the Great Depression - Unless
government makes the economy even worse than it has already by further
intervention and irrational populist policies |
|
January 2009 - Keep it simple: Send a
clear message to your elected officials - Before the Tea Party
movement got started in response to passage of the "stimulus" bill.
Voters were urged to tell their members of Congress that the only new
jobs they would be creating by this bill would be for many Americans to
work hard for their defeat in 2010 and 2012 elections. Guess who
got this right? |
|
February 13, 2009 - "You will know their names. I will make them
famous." A date which will live in infamy - the passage of the
"stimulus" bill. See also February
2009 news archive. |
|
February 27, 2009 - Chicago Tea Party
One of a few dozen nationwide at the start of the movement. |
