Thursday, 10 December 2009

We can't pay ourselves more than we earn (Jim Hacker!)

Notes on Chapter 4 of 'Economics in One Lesson' by Hazlitt
There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panecea for all our economic ills.

Everything we get, outside of the free gifts of nature, must in some way be paid for.
So, it follows that every pound of government spending must be paid for by a pound of taxation (or more if there is interest to pay on loans) {inflation must kick in here somehow, but here at ch 4 we haven't got to that yet}

In this chapter Hazlitt is not addressing the need for public spending, which he upholds for 'essential govenerment functions' (by which he seems to mean, law and order (legislature, police, fire, army/navy/airforce) and roads). He is concerned with the idea that public works are a means of 'providing employment' or adding wealth to the community.


If an (unnecessary) bridge is built in order to create 5000 jobs at a cost of £10 million then the taxpayers have lost at least £10 million.

And they would have (in a complex web of individual transactions) spent that on other things that would have resulted in an extraordinary amount of economic activity and jobs elsewhere. Just we don't get to see that (again ... he is encouraging us to see beyond the 'here and now') ... all we can see is the new bridge and the 5000 jobs.

And that lends power to the argument that government can 'create' jobs and wealth. And that the country would be poorer without them. After all, look at the bridge ( or cheap housing or dam or whatever).

And just think, if these economic dinausaurs and reactionaries and obstructionists had had their way there would be no bridge. They are mere 'theorists' ... but look at this bridge ... it is a really solid economic achievement of THIS government.

So, what is the lesson? We need to train ourselves to see the unbuilt houses, unmade cars, dresses, unsold, ungrown foods etc.
If taxes are taken from individuals and corporations, and spent in one particular section of the country, why should it cause surprise, why should it be regarded as a miracle, if that section becomes comparatively richer? Other sections of the country, we should remember,  are then comparatively poorer.
The thing so great that 'private capital could not have built it' has in fact been built by private capital - the captial that was expropriated in taxes

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