Tuesday, October 21, 2008

Government and the Economy

A familiar mantra on the political Right argues that the nation’s economy is best served by reduced government spending, taxes, and business regulation. To do otherwise is to restrict growth, encourage waste, and invite socialism. This argument assumes some things that have not been proven true: (1) much of the money spent by the government is wasted; (2) the government does not support economic growth and capitalism; (3) businesses are sufficiently self-regulating; and (4) the public and private components of the economy are interchangeable, except that the private component is inherently more efficient.

Of the assumptions built into the Right’s assertion, the last one blows the others apart. Government and industry have two distinctly different economic roles, and are therefore not interchangeable. Government’s purpose is to maximize the wealth and longevity of society, while private industry’s purpose is to maximize the wealth and longevity of individuals. There is some interplay between the two: By providing resources and infrastructure (both physical and social), government supports private industry and individuals, and therefore economic growth and capitalism; in return, industry and individuals support government by paying taxes and following laws. Since industry is composed of people whose goal is to acquire as much power as possible, it has no inherent stake in controlling its impact on anyone other than its direct suppliers and customers (self-regulation).

Because their purposes are different, the definition of “waste” must be different for government and industry: For government, resources (including labor) are wasted if they do not serve the public good; for industry, resources are wasted if they translate into costs that restrict choices available to individuals. The solution to excess waste in government is therefore not to reduce its inputs, but to make it more efficient, since society (industry included) depends heavily on what it provides.

There is a grain of truth in the prediction that increased taxes and regulation can lead to socialism (social control of the economy). Many taxes (and tax “breaks”) are used to encourage or discourage certain behavior, and regulation explicitly alters the behavior of business. The controls used by government (in our country, the society) are legitimate to the extent that they protect and provide equal access to resources and infrastructure; they lose legitimacy when they attempt to do anything else. Government intervention in the economy may temporarily appear socialist if it must wrest control of resources and infrastructure from private individuals or organizations who are limiting its access by everyone else. True socialism exists, however, when the government institutionally and permanently controls all aspects of the economy (private, in addition to common elements).

Like it or not, a society is most healthy when everyone has equal access to adequate resources and infrastructure, and individuals have the freedom to maximize their own happiness through what they do with those things. Because individuals can’t do everything, especially in large populations with highly complex interactions, they create organizations with specific roles. Government, one such organization, acquires and provides the basic requirements for everyone, while businesses in private industry are organizations that enable individuals to pursue their own happiness. As long as these organizations stick to their specific roles and perform them well, there is no reason for them to clash.

Unfortunately, the world is running out of useful natural resources, which is forcing a colossal shift in every economy – especially the rich ones like ours. Dissatisfaction with governments, given their responsibility in this area, will only grow as we get closer to the limit. We must be careful not to assign blame for this universal problem, to government or anyone else, but rather we need to all work together to deal with it.

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