Financial journalists are concluding that austerity is killing Europe’s economy, and they worry the same could happen to the United States. America’s various levels of governments are contracting, laying off workers, and cutting services.
The whole civilized world is doomed, they say, by this reduction in government. To their minds, an expanding government leads to an expanding economy, as measured by gross domestic product (GDP).
Does government drive the economy? How could it? Everything it has, it has taken from us. It produces nothing, but only exists to the extent it can feed off its host — wealth creation aimed at serving customers in the private economy.
Of course, the GDP is just another phony government number. The number doesn’t tell us anything worth knowing. It tells us nothing about prosperity.
Here in the U.S., private business is adding workers, but The New York Times reports that governments are handing out pink slips, and that is hurting the recovery. Some 706,000 government positions have been axed since April 2009.
More than a quarter of municipal governments are planning layoffs this year, the Times reports. Federal and state government support has declined, and property tax bases have been devastated.
Federal and state governments depend upon private sector economic growth that can be taxed. In turn, local governments are dependent upon that same economic vitality — none of which is generated by the government. It’s backward to think government jobs create economic growth when in fact government jobs can only be supported by economic activity in the private sector.
But President Obama doesn’t understand economics or cause-and-effect any better than those writing for the New York Times. He thinks the public sector must grow to compensate for the private sector not hiring.
This implies that all jobs are homogeneous. But a particular private sector job serving customers can’t be replaced in government doing something that consumers don’t want for the same effect.
The worker had that job because he or she produced more than he or she cost the employer in the pursuit of satisfying customers. Fewer customers means fewer jobs are needed. Less economic activity means fewer tax dollars going to government. Fewer tax dollars means government doesn’t have the resources to hire more people.
The idea that hiring more government workers stimulates economic activity stands reason on its head.
Economics professor Tyler Watts makes the point in “The Freemanonline”: “Perhaps we’ve been spoiled by hundreds of years of a generally prosperous and growing market economy into assuming that all workers necessarily add to economic output by exactly the value of their paychecks.”
But professor Watts quickly makes the point that government workers don’t provide the same value. There is no market test to determine if government workers are generating value. Only political rules apply.
The fact that government employment is shrinking is only a signal that economies worldwide are attempting to recover from decades of debt and malinvestment, which includes too much government.
Government austerity is, in the long run, a blessing to the rest of the population.
Photo credit: 401(K) 2012 (Creative Commons)
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