Big Government vs. Small Government ~ Which is Best?

The political right in the United States today, represented by the Republican party and some Libertarian and Independent candidates, often refer to their opposition, mostly Democrats, as being Big Government, tax-and-spend Liberals.

October 19, 2008  —  With the whole nation anxious about the economy, it’s certainly an interesting time to be teaching economics.  As it turned out, we covered Aggregate Expenditures and Aggregate Demand and Supply in my high school Advanced Placement Macroeconomics class last week, just when our two finalists in the 2008 race for the White House were sharing details about their different plans for the economy.  I showed my students a replay of selected exchanges between Senators McCain and Obama as they defended their different plans during the final Presidential debate. As my students watched with a better basis for understanding how the different plans might work, I could almost see the light bulbs going on over their heads – some tinted red, some tinted blue. Afterward, there was some vigorous discussion in class on the issue of redistributing income — “spreading the wealth around,” as Senator McCain had put it during the debate. He was referring to what he characterized as being the Big Government, tax-and-spend plans proposed by Senator Obama. Obama, according to Senator McCain, had used the spreading-the-wealth phrase as he responded to a question from the now-famous Joe the Plumber (Joe Wurzelbacher) just days before the debate.

The political right in the United States today, represented by the Republican party and some Libertarian and Independent candidates, often refer to their opposition, mostly Democrats, as being Big Government, tax-and-spend Liberals. They use these terms to describe a government that has grown excessively large, corrupt and inefficient, or a government that is inappropriately involved in certain areas of public policy where the advocates of Small Government and Laissez-faire economic policies believe government should not go. In this, I personally think the pot is calling the kettle black owing to the growth in the size of govern- ment and deficit spending during the Reagan and both Bush administrations. But I resisted sharing this opinion with my students.

According to Wikipedia, Big Government is a pejorative term that can mean any number of different bureaucratic criticisms such as:  government program goals that could be accomplished by smaller, more nimble organizations; federalized programs that are tradit- ionally implemented at the state level; governments becoming involved in programs that seek to accomplish things normally done by the private sector; programs that are likely to increase significantly in cost over time; programs that are resistant to reform; large bureaucracies lacking in accountability; limited checks and balances on power; inadequate or inconsistent metrics to verify to efficacy, and; programs that return limited benefits to tax payers. Common examples of Big Government are unfunded or underfunded federal mandates (No Child Left Behind is one such mandate that immediately comes to this teacher’s mind).

Liberal commentators and some Democrats and Independents often counter the criticisms of Big Government with criticisms of “big business”, casting it and elected officials who court it with special legislative and regulatory favors in return for campaign contributions, as an alliance against the public’s interest. Other special-interest bigs include: “big labor”, “big oil”, “big tobacco”, “big pharma”, and other big Political Action Committees (PACS). Those who argue that Big Government is not the problem, that corrupt government and inefficient government programs are, believe that government governs best when it believes in itself and when it governs in the “public” interest rather than in the “special” interest. Big Government, they say, can get things done, partic- ularly in the field of large public works like:  the Tennessee Valley Authority (TVA), our Interstate Highway system, the Panama Canal, the Erie Canal, the New Orleans port facilities and levee system, Hoover Dam, the Golden Gate and San Francisco Bay bridges, the Chesapeake Bay Tunnel-Bridge, and Alaska’s infamous “bridge to nowhere.”

So, which is best, Big Government or Small Government? My Libertarian son has argued that the only legitimate role for Big Government is defense, that if government at the federal level would just “butt-out”, individual states would be better off handling law enforcement, infrastructure, education, etc., by themselves. He also argues that the federal income tax is unfair, that it punishes those who are most successful by taking a larger share of their Personal Income (PI) and redistributing it to those who are less successful in Robin Hood fashion. Most Republicans, so it seems, are likewise persuaded. So, okay, let’s look at the Big vs. Small Government issue from the standpoint of taxing and spending.

First, I assume that all who are still reading this believe in utilitarianism, those who, like Star Trek’s Mr. Spock character, believe that “the good of the many outweighs the good of the few, or the one.” If you don’t believe this, then you are probably a Social Darwinist and won’t much be convinced with any argument for an economic system that, like a tide when it rises “lifts all boats.”

Second, some basic review on the Keynesian Aggregate Expenditures model

We know from empirical data that the more societies produce, the more they consume. It is also true that the more they produce, the more they save. Saving, unlike investing, is simply the opposite of consuming, spending delayed. But it is consuming that drives our economy. Of all the factors considered in calculating Gross Domes- tic Product (GDP) using the expenditures method, consumption, gross investment, government spending, and net export (GDP = C + Ig + G + Xn), fully two-thirds is estimated to be from consump- tion. And what is true for society as a whole, is also true for households… the more “disposable” income (DI) a household has, the more it will consume or spend and the more it will save. However, the propensity or tendency to consume is higher for those with lower incomes; these households spend more and, in many cases, all of what they make. In fact, most even consume or spend more than they make, whether by borrowing, called dissaving, or by obtaining money, goods and/or services from welfare and other benevolences… TINSTAAFL (There Is No Such Thing As A Free Lunch).

Notwithstanding the source, dissaving creates a burden on households (the interest paid to service the debt plus the lost opportunity to consume). Dissaving by society as a whole creates a burden as well. Fully fourteen percent of our national budget goes to service debt currently, and ten to fifteen percent of this is paid to foreign holders of this debt, primarily Japan and China. The propensity to save, or tendency to delay consumption (the storing up of wealth) is higher for those with higher incomes – DAHHH, and much higher for the super rich. So, the more income a household has, the greater the propensity to save and the lower the propensity to consume. These are called “marginal” propensities, or the change in consumption divided by the change in income and the change in saving divided by the change in income. Added together, marginal consumption and marginal saving always equals one (1), assuming a closed economy… one without leakage such as we have as a result of our trade deficit and interest paid to foreign holders of debt obligations.

The fraction, or percentage, of total consumption divided by total income is called the Average Propensity to Consume (APC). The fraction, or percentage of total saving divided by total income is called the Average Propensity to Save (APS). For argument-sake, let’s say the APC for the United States is 0.75 and the APS is 0.25 – close enough for purposes of illustration.

Third, understanding multiplier effects…

Consumption, government spending, investment and taxation all have multiplier effects. By this it is meant that a portion of one household’s disposable income (DI), in the case of the consumption multiplier, becomes a portion of another household’s income. Likewise, government spending and investment, or the purchase of capital (although not as direct and unadulterated as consump- tion and government spending), becomes others’ incomes. In the case of consumption, 0.75 percent of DI is spent over and over again, assuming each household’s MPC is also society’s APC, until the original amount is depleted by successive reductions. An APC of 0.75 has a multiplier of four (one divided by 0.25), which means a dollar spent increases aggregate expenditures, or GDP, four dollars. All multipliers are positive, at the national level, adding to domestic output or GDP, except for the taxation multiplier, which is negative. However, since taxation reduces both consumption and savings, the effect has less weight than does government spending affecting output. Domestic government spending, like consumption, but unlike investment and foreign exchange, has a direct and unadulterated effect on aggregate expenditures.

Assume $20 billion of taxes on income where all else is equal (ceteris paribus). Applying the taxation multiplier, four (4), which is negative, to $15 billion ($5 billion of the 20 being reduced from saving, which doesn’t help the economy in the near term), output or GDP is diminished by $60 billion (15 X 4 = 60).   However, assuming a balanced budget, that same $20 billion now becomes available for the government to spend, and since government never saves (hasn’t at least since the end of the Clinton administration), that $20 billion is all multiplied by four (4)… a plus four (4). Therefore, GDP grows by $80 billion, a net difference of a plus $20 billion. So taxing and spending actually helps the economy as a whole. This is what Senator Obama was trying to convey to Joe the Plumber when he used the phrase, “…spread the wealth around.”

Government spending raises the tide, a metaphor for the economy, which lifts all boats. Tax cuts too are good; they help the economy since people have more DI (personal income after taxes). But this assumes a balanced budget. When government spends more than it takes in, especially when this spending is done overseas, the tide is lowered taking all boats with it. That, at least in-part, is what has happened to our economy over the past four years.

Now, not to sound elitist or anything, but I would expect a magna cum laude Harvard law school graduate to understand this, whereas a Naval Academy officer graduating fifth from the bottom of his class, or a student who attended six colleges in five years before finally completing her baccalaureate in communications-journalism with a GPA that she has not seen fit to make public might not, much less Joe the Plumber. As Mr. Spock would say, “The logic is sound.” But, whether one follows the logic and/or accepts it, it seems to me that a true Christian would have to admit the concept is Biblical.

I invite your comment, pro or con.

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Published in: on October 19, 2008 at 9:45 pm  Comments (61)  

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  1. Thanks Kent. Your blog on “Big Government vs. Small Government – Which is Best?” really made me do lots of thinking and required the use of my brain. I think we as human go through an exercise of “relaxing” our brain too, too often and we leave it in the relaxation mode. It is that way with me at time so when I read your latest blog, I thought Whoa! A wakeup call. Your last para. tells it all. You know I never thought that Sen. Obama meant that he would literally take someone funds away and give them to anyone less fortunate. I thought he meant a fair & equitable way of taxing individuals. After seeing Mrs. McCain tax return for 2007 & the amount that she made, I wonder why I am paying the same tax rate as she is paying? Now something is wrong with that picture.

    As far as Sen. Obama being a “socialist” — I wonder if we know the true meaning of socialism? First he was an elitist, then he was inexperienced, now he is a socialist so says poor Sarah Palin. Oh well, Paul & I both voted yesterday and voted for Sen. Obama. Can you imagine Paul voting for a democrat? I was shocked when he told me and also found out that he has been sending Sen. Obama funds. Can you imagine that? There are some lovely republicans out there and it seems I married one.

  2. I commented on my blog: http://sanerantsonstuff.blogspot.com/2008/10/economic-slight-of-hand.html

    It’s easy to play tricks with numbers. Multipliers and reserves (money creation) and such. I prefer to take a different approach. There are fixed resources (labor and capital) at any given time. The government currently lays claim to a subset of the available resources, as does private enterprise and individuals. Depending on your beliefs as to the role of government, the government should either increase, decrease (or maintain the status quo) it’s claim on those resources.

    In my opinion and experience, the lives of citizens are improved when they, as free people, control the bulk of the resources; particularly when those resources pertain to their trade and/or quality of life. And I agree with McCain, that when we’re given responsibility for our own success, we usually increase our pies (resources), and when we let the government run our lives our pies usually diminish. Bush moved the claim on resources to his socialist elites and we’re in a mess. Obama will move it to his socialist cronies, and we’ll be in a bigger mess. McCain, with his small government and low tax rhetoric, and his ornery personage, will likely reduce the government’s claims on resources and/or reduce its effectiveness at shrinking our pies: which is just what I want.

  3. It’s even easier to ignore the lessons of the classroom, the warnings of the scientific community, and the consequences of past behavior so as to cling to the comfort of dogma that sustains the status quo. But thank you for visiting World According to Opa and for expressing your opinion, Ranter.

  4. I’m a little harsh, here. Hopefully you will find it provocative and not inflammatory.

    > ignore the lessons of the classroom
    Those who can, do. Those who can’t, teach. You’re rather vague in your meaning, but I’ve found that the ideals of the classroom often do not translate outside of school walls.

    > warnings of the scientific community
    About what in particular? Global warming? Economic (keynesian, austrian) theorists on bubbles?

    > comfort of dogma that sustains the status quo
    Nice line. The most dogmatic individuals I’ve known have been teachers: clinging to theories that don’t work in the real world. The status quo exists for a reason: because it works, however imperfectly. Change is only appropriate when the status quo exhibits serious flaws, which it is doing under Bush administration socialism. The underlying flaw, transfer of resources from those who produce to those who do not, will continue under an Obama administration, it’s just that the beneficiaries will change. As part of (I assume) a teachers union, you will probably benefit (not that you don’t produce, but as a relative of two teachers, I find socialist education flawed).

    > But thank you for visiting World According to Opa and for expressing your opinion
    My thanks to you also.

  5. Please know that I’ve heard the “Those who can, do…” line so often that it’s no longer the least bit offensive to me — if to offend was your intent. But I, a humble teacher, have offered evidence to support my view on big vs. small government, while you have offered nothing but opinion and insults. It is unfortunate that your own education has left you so jaded, closed-minded and distrustful of teachers, Chris. So, perhaps it would be more valid to say, Those who can teach, do. Those who cannot teach, shouldn’t try.

    I think it is interesting that you have chosen the pseudonym, ranter (all lower case). A psychologist might read something into that, but I make no assumptions.

  6. I was quiet happy with the article until I read the comments.

    Your comment regarding the ‘dogma that sustains the status quo’ was very narrow minded and, like your last paragraph it came across as elitist.

    This blog entry was full of information, good information. Yet it did not disprove the ‘other side’ of the issue – it only proved the worth of one side.
    While reading the comments between yourself and ‘ranter’ it would seem your mind set is that your position is the ‘correct’ one and that you find the opposition distasteful.

    Overall, I think this argument has many dimensions and we need to focus on synergy rather than compromise to come to a consensus. I enjoyed reading your viewpoint on the matter.

  7. I’m sorry, “squigglethecow”, if by communicating my persuasions I have at times come across as though I think I am better or brighter than others who happen to see things differently. Obviously, I believe that I have a more correct understanding on those issues that I choose to debate. I am am elitist though, I admit it. But an elitist, according to Wikipedia and Webster, as I recall, is one who believes that the best and the brightest should be chosen to lead. I do not believe that these persons necessarily come from any given class whether defined by race, religion, ethnicity, gender or even sexual orientation… nor do I believe that the elite should have special privileges in society. They have instead, I believe, special responsibilities to society. Therefore, I am not guilty of the debased form of “social” elitism which is “discrimination”.

    I take no responsibility for the views of others who post comments at The World According to Opa, and only delete those comments that I feel are expressed in an ugly or disrespectful manner. It is an open forum.

    No, I do not consider all of those who wax conservative, such as ranter, to be distasteful, but I do believe that those who are “fundamentally” conservative, or liberal for that matter, do tend to argue their views distastefully.

  8. I think both views are wrong. What we really need to do is think like businessmen. Think, what do we have that noone else can claim? The Moon! It’s simple, we sell the moon for X trillion dollars. But by the time the country that bought the moon actually has the resources to go to the moon (remember they paid us LOTS of money), we will have used their funds to colonize it. Then, we can send all of the conservatives up to the moon where they can talk about the gospel of wealth, how monopolies are good for the economy, how they liked the way things were 100 years ago…You know, conservative stuff. Meanwhile, back on earth, the U.S would have solved its monetary issues, gotten rid of the conservatives, and stolen something from yet another social group (the country we sold the moon to). A great day for America!

  9. I read your article, and though I do not agree with you, I enjoyed reading your point of view.

    However, you make many assumptions.

    You assume that most people are utilitarians? Why? Western society, liberal democracy, and constitutional republican government outright reject the notion of utility, since it requires an outside “agent” to decide what is “good”. “…that all men are created EQUAL…and with certain INALIENABLE rights. If it’s okay for government to penalize 1% for the betterment of 99%, why not 49% for 51%? No, society is established on principles of justice. In fact many people who might be more egalitarian liberal than you, reject utilitarianism precisely because it is unjust and partial.

    By saying things people like to hear like “balancing the budget is good” you’re not going to lure me to follow you blindly into your conclusion.

    And I aggree with the person who said you don’t really disprove the other side. I see your point about the rich being able to save while the dirt poor cannot save and must spend what they have to live, but you do not address the single biggest counterpoint that big government spending in the area of wealth redistribution leads to the poverty trap.

    You said consumption drives the economy. Is it not (as others might argue) production and/or saving?

    “This is what Obama was trying to say when he said ‘spread the wealth around'”.
    -You lost your credibility right there. He was cornered and delivered a very “populous” statement. It’s easy to get elected when you promise people things than when you plan to take them away. This one sounded socialist and backfired.

  10. Thank you for your comment, Greg.

    Yes, I did make assumptions in my posting, Big Government vs. Small Government, etc. About political “theory,” one must always make assumptions whether arguing for and on behalf of liberal or conservative camps. In your comment, you too have made assumptions, the biggest being that society is based on principles of justice. Our society may purport to be based on principles of justice, but justice for many in this country has been a long time coming. There is no justice at all in some countries. Consider North Korea or, as it seems today, Iran. No, sir, the basis for society, any society, is not justice. We form societies, subjecting ourselves to law, limiting our choices and accepting the specter of judgment in exchange for social order and the mutual benefits of community: security and profit through specialization and trade. You should read what the great thinkers on social contract theory, Hobbes, Locke and Rousseau had to say about it. Even history’s most wise disagreed. Adam Smith, the father of modern economic theory, rejected the whole idea of social contracts. Smith argued that the wealth and politics of nations are tied to their levels of economic development — and a large part of our way of life, our economy, is based his ideas.

    Yes, I do assume that most people are utilitarian, Greg — or that they would be if only they understood what it means to be utilitarian. Proponents of utilitarian thought do not advocate that utility (the satisfaction of needs and wants) should be determined by the few for the many. However, the greatest good for the greatest number is far from being an illogical concept, especially when the majority agree. Consider the current issue of health care reform. Seventy percent of Americans say that they believe the President’s idea of offering a public insurance option is a good idea. Should Congress reject the idea and the will of the majority because thirty percent of Americans disagree? No, I think not.

    Yes, sir, consumption, or rather, demand, in market economies does drive the economy. Since you disagree, your thinking must be aligned with the few economists who still believe, despite all the recent evidence to the contrary, in the “trickle-down” theory of supply-side economics popularized during the Reagan era. No, no, and again I say, no. Producers will not produce in the absence of demand. When demand falls, businesses, more accurately the captains of industry and finance, protect themselves and their profits by cutting production and laying-off workers. Have you not been following the news?

    Finally, on your assumption about the relationship between welfare and poverty — the infamous “welfare trap” myth. Welfare does not cause or perpetuate poverty, Greg. Ignorance does. http://hcom.csumb.edu/welfare/resources/myths_facts.html

    Opa

  11. First off, thank you for the very detailed and informative blog. I am in support of Big Government especially if the majority of the money is taken away from the rich. It makes absolutely no sense to believe that trickle down economics actually works as for 8 whole years we’ve been constantly pumping the highest of the high earners with more and more money through tax cuts and we just get a big economic meltdown. Suppose the highest earners choose to save that money rather than to create jobs, put money into people’s pockets so they can invest in a car, or a house, or in other products they may purchase. How will keeping all of the money for oneself actually help society? It can’t. Greed will always exist unless something is done about it. I don’t feel sorry for people who only made 1 million during the last year rather than 3 million. The 1% of people on the top of the social hierarchy who can actually claim that are not helping the rest of the 270 million Americans in the Middle and Working classes. If GDP really does depend on how much we consume, and the top 1% of Americans aren’t doing anything to keep it higher, then we really did need a Change.

  12. i enjoyed your article,and although i consider myself libertarian on many issues i agreed with much of what you said. i did have a issue, if that is the right word, with your assumption that saving is not beneficial to our economy. i fully expect critisism (and would welcome it) for what im about to say, but is saving just delayed spending? and i have a quick question. what is so wrong with being taxed an equal percentage across the board? again i thank you for writing this article

  13. Saving, for many of us, Arrowsmithkid, is just delayed spending, this is true. But for the richest of Americans, those among whom most of our wealth is concentrated, savings amounts to the accumulation of wealth that is neither spent nor invested. And wealth that is not put back into circulation at some point, showing up in the calculation of Gross Domestic Product (GDP), using the expenditures formula for this, as either consumer spending, investment spending for the purchase of capital used for production of goods and/or the provision of services, or government spending, does nothing for the economy. In fact, savings that is squirreled away to grow by way of interest paid by tax payers on government bonds, treasury bills and notes, or hidden from the government to avoid taxes in secret overseas bank accounts, is an awesome drag on the vitality of our economy.
    As to your question about flat tax proposals, please see my posting on why the rich pay higher taxes. It’s my Economic Truth, Part III.

  14. Wouldn’t utilitarianism eventually come into conflict with human rights? The concept of eminent domain comes to mind here – it’s impossible to respect an individual’s right to property and still adhere to the “greatest good for the greatest number of people involved” principle. If we take that with what you said later – that we organize societies not out of need for justice but for social order and the benefit of community – doesn’t that make all violations of human rights for the good of the majority a moot point?

    Consider China for a moment – it has no compunction when dealing with political dissidents. If we accept the idea that the principle behind societies is order, not justice, then it’s perfectly fine for China to do what it does if its goal is to preserve social order. After all, it does it for the greatest benefit for the greatest number of people involved.

    Not only that, but if western democracies also practice violations of human rights for the “good of the greatest number of people” – what right to they have to accuse others doing the same? And yes, I’m aware that usurping somebody’s property and killing or exiling them is not the same, but in such a case one must explain why one is acceptable and the other is not without offering the magnitude of the violation as the reason.

    You also mentioned that Obama should not listen to the 30% over the 70% when it comes to health-care. While I’d generally agree with that, I feel that it’s a bit misguided to equalize participating and contribution to society since they’re clearly not the same. What if those 30% are contributing more to the society than the other 70%? Obviously, a working society needs people that contribute to, well, work. I don’t see much benefit for a society from having thousands of people that have voting rights but do not contribute to the society they live in over a much smaller number that does contribute. While I’m not saying that all of these 70% don’t contribute, the fact is that contribution play no role when it comes to the ballot box.

    In your last post, you mention that savings that grows by interest is a drag on the vitality of the economy. Is this something particular to people with large investments or does this generally apply from say, pension funds investing in government bonds? What about foreign investors whose investments (prior to actually being invested) cannot be taxed by the IRS? Is the interest on their investments also a drag on the economy?

    I got the impression that interest is a drag only because the government can get the money without actually having to pay the interest. What that makes of a country’s citizens, I’d rather not say.

  15. Dear Libertarian – you are making the classic libertarian argument based on the premise that property rights are the same thing as human rights. This is not true. While the Universal Declaration of Human Rights http://www.un.org/en/documents/udhr/ does say that everyone has the right to own property (Article 17), it also says that no one should be “arbitrarily” deprived of his property. This means that this right is not absolute. Personal property may be appropriated when the purpose is deemed necessary by legal authority, not at whim or random or for reasons of discrimination or persecution. You may not think this is fair. But that’s the way it is.

    Yes, I stand by my assertion that President Obama should consider the will of the majority over the minority. Although our Constitution protects the rights of minority members of society, the will of the people, based on the One-Man-One-Vote principle, is expressed by the majority opinion. To suggest that those who contribute more to society should have more say is elitist. Besides, how would one measure the degree of contribution, by how much one earns? Rubbish. Consider teachers, how little they are paid. Notwithstanding their level of compensation by society, we trust them to prepare our future leaders to be doctors, lawyers, and heads of state. Perhaps their opinions should be given more weight.

    Yes, savings are a drag on economic vitality, i.e., growth. Saving, sir, is not investment. Saving is simply the opposite of spending, or disposable income withheld from compounding via the money multiplier. And the wealthy have a much higher propensity to save than the rest of the population. Investment is the purchase of capital, another form of spending, and that is a good thing for our economy. However, investment is not made in the absence of aggregate demand or the anticipation of improved economic conditions.

    Yes, the purchase of government securities by foreigners and other nations such as China and Japan are a drag on our economy. Currently, ten percent of our GDP services the interest on these loans, and that is U.S. money flowing out of the country. Economists refer to this flow as leakage. We would be much better off with balanced budgets when the economy is expanding. Unfortunately, the economy is in recession, and at these times the government is the spender of last-resort.

  16. If what you say is true (and frankly, I have no reason to doubt) then I can’t help but notice a major problem here – the legal authority can use this power in any way it likes – as long as it deems it necessary. I’m pretty sure that the Soviet Union (or, for that matter, any socialist government) deemed it necessary to expropriate private property based on its own utilitarian principles. However, if we accept such a thing as true, then we have a startling realization – America (or, for that matter, most western countries) and the Soviet Union don’t differ when it comes to the expropriation of private property, they only differ in how much private property needs to be expropriated by the government.

    The thought that my private property is my own only as long as the government deems it unnecessary to take it from me makes me quite uneasy.

    As far as voting is concerned, did you yourself not proclaim to be an Elitist, in that “the best and brightest should lead”? Mind you, I’m not suggesting a voting system based on discrimination – far from it. What I’d like to see is a democratic system based on quantifiable contribution to society – regardless of whether that contribution is community involvement, tax dollars or something else. Or, if you want to turn it around – having a say only in how your contribution is used, not that of other people.

    Yet, if a lot of money is being saved, does that not reduce the cost of borrowing? And how is directly investing as opposed to saving money in a bank (and thus allowing the bank to loan it for investing) different?

    I think I see where you’re going with the “drag on economy” idea. However, by following such a logic, one could say that working is a drag on personal life. Yet clearly, if a person wants to be paid, he must also work. Of course, if we’re looking at it strictly on pragmatic grounds, the government is indeed better off simply taking money from its citizens than borrowing it from them, as long as it can get away with it. Whether this is (or should be) acceptable on other grounds is a different matter altogether.

  17. Libertarian ~ I understand your discomfort with the reality of things. Fortunately, in the United States and even in other Western democracies that are more left-of-center the we are, private property rights are, of necessity, an honored characteristic of market economies, especially “intellectual” property. But, I suspect that your issue is not really so much with the specter of loosing real property to the common good as it is with having to contribute a portion of your income to the common good by way of income taxes. However, the progressive income tax in this and other countries serves an important purpose as a built-in stabilizer. See my posting on why the rich pay higher taxes.

    Yes, I did post an article in which I mused, tongue-in-cheek, about the idea of the best and brightest in society having a weighted say in things. But the point of the article, which most people missed completely, was that we should want to select the best and brightest among us to lead us. I was responding at the time to ugly right-wing protestations that Barack Obama is an elitist, declaring that, I too am an elitist because I believe that we should elect the best qualified, most talented and most inspired. The choice, for me, between John McCain who graduated fifth from the bottom of his class in the Naval Academy and Barack Obama who graduated Magna Cum laude from Harvard Law School, was obvious.

    Yes, if the government were to collect more than it spends, thus paying down the National Debt and/or buying back securities sold to foreign governments and individuals, we could over time reduce the amount of interest we have to pay out of national income. But that’s not the same thing as saving, is it? Borrowing is “dissaving”. Paying off the debt just avoids more dissaving.

    When individuals buy stocks, bonds or other “securities,” the money they spend or “gamble” is often held in escrow by the seller of said securities until market conditions make it prudent for them to buy capital (the only true investment) or further “gamble” the money. The gambling is by way of risky instruments for short-term profits like mortgage loans to people who are marginally qualified or minimally responsible.

    Sometimes “troubled” assets like these kinds of mortgages (ARMs and Balloon payment contracts) are then resold and bundled/combined with other risky gambling instruments like the recently exposed “derivatives” and/or junk bonds, which create a financial market bubble. Eventually, as happened last year or even more notoriously, eighty years ago this week when the stock market bubble finally burst on Black Tuesday. So, depositing our money in banks or buying certain other so-called “investment” instruments like CD’s and some corporate bonds just contributes to market bubbles and compounding lag in economic growth. This is not to say that there are no reasonably secure “savings” instruments. Nor am I saying that we should not save. But the higher the risk, the higher the potential, near-term return, and the more likely it becomes that we’ll loose our money. For my money, the safest/best “savings” instruments are tax-free municipal bonds. Notice, I refrain from using the word, “investments”, although these savings instruments come as close to true investment vehicles than most. This is because the money is spent by city governments to create, expand or repair infrastructure and/or contribute to development of human capital through education. Our return eventually comes by way of taxes collected by the cities.

    Governments, although not always the most efficient and honest managers of our resources, are not the evil empires that many think. The real crooks are the free-wheeling, big-dealing executives on Wall Street — modern-day Rober Barons. Profit is one thing. Greed is quite another.

  18. Even though I do have my qualms with taxes (as I suppose, most libertarians do) that is not what I’m aiming at here. The idea that any of my rights – privacy, personal property – perhaps even my life is my own only as long as it’s convenient or necessary for the government is quite disturbing. Worse yet, it undermines the individual’s faith in the system (sometimes I believe is critical for a functioning society) and promotes the same pragmatic (and, dare I say, opportunistic) approach that the government uses – and who can blame them?

    If your government decides to oust you from your own home because it’s prudent to do so, who would blame you for looking out for yourself first and leaving the public good to the government to look after?

    As far as elitism goes, I’m quite surprised to see that America, a country of over 300 million people has no more than two people to run for the spot of “best and brightest”, including one person that really isn’t (McCain). As far as I’m concerned, there was no choice involved, regardless of whatever merits you may want to judge the candidates on. It was a case of pigeonholing people’s votes for the sake of establishing legitimacy.

    It’s quite funny that you mention human capital and in particular education. For one, saying “human capital” makes it seem like the government owns its people, as a businessman would own his business assets. If I were to judge the government’s ability to spend the taxpayer’s money based solely on the US educational system, I’d probably reach the conclusion that money is not being well spent. For all the resources at its disposal, the country’s top colleges are still private (and quite expensive, too). Even more ironically, “our” best and brightest did not achieve a Magna Cum laude at a community college (and if he did, I don’t think we’d be praising him as we are now).

    I have to partly disagree with you that borrowing is a drag on the vitality of the economy. Of course, paying off the debt obviously IS a drag. But the very act of borrowing is not. What could make it a drag is poor use of funds – something governments the world over are guilty of. But if that is the case, the blame rests squarely on the government.

    I can’t say I see the difference between the government and the “Rober Barons” – in principle, anyway. I highly doubt that Wall Street would go out of its way just to take my property if it wasn’t convenient or “necessary” for it to do so. In that, it is the same as the government – it will not act in a certain way unless it’s beneficial to its goal. And while we may debate all we want on how often one government feel this need as opposed to another, or how often private interests are likely to do it as opposed to the government, the fact remains that all of them are willing to do it if it’s advantageous to the fulfillment of their goals.

    And, as far as I’m concerned (and I’d wager quite a few other people) it makes no difference to me whether I’m being ousted from my own home because the government wants to build a road there or because somebody wants to build a factory there – in both cases I’d be leaving my home with resentment.

  19. Libertarian – I really do think that you’re overestimating the risk/danger connected with our social contract, the Constitution of the United States.

    By the way, the e-mail address you have been using is an invalid one. Therefore, I will not be approving or responding to future submissions.

    Of necessity, people must give up some rights to the government in order to receive or maintain social order through the Rule of Law. We, here in the United States, having embraced federal and state constitutions, have given up very little compared to citizens of other countries. Accordingly, we are blessed.

    Concerning your latest comment on elitism, what surprises me most is that our system allows for the likes of those who ran against Barack Obama to be considered for the highest post in the land, and that so many Americans supported them.

    Regardless of how the term, “human capital,” may sound to you, it is an accepted economic term meaning the collective skills, talents and motivations of a nation’s people. It implies that people are an important factor in terms of labor, creativity, inventiveness, and entrepreneurial ability for production capacity. Therefore, to grow our productivity and maintain our competitive advantage in international trade, we must prioritize higher investments in education. That’s my bottom line.

    Your comment on governments making poor decisions with regard to spending and them being no different than the Robber Barons of yesteryear and the Robber Barons in high-rise office buildings on Wall Street today speaks volumes about your lack of confidence in government. Sadly, many Americans feel as you do about this without even considering which party it was that got us into this mess today and which party it has been that has historically had to clean up the mess.

    With respect to being “ousted” from our homes, I can’t help but reflect on two recent events, one here locally in North-Central Texas, and one in Beijing, China. When the city of Arlington, Texas decided to collaborate with Cowboys’ owner, Jerry Jones, to build a new stadium near the Ranger’s ballpark and the Six-Flags amusement park, the city had to buy personal property in an older, devalued neighborhood of the city for parking. The citizens, many of them at least, were delighted. They got much more for their old homes than their retail value on an individual basis. In Beijing, when the 2008 Summer Olympics facilities were being built, people were simply evicted from their homes without compensation at all because they never owned their homes in the first place. The state owns everything in China. So, sir, I suggest that you learn to appreciate your good fortune, being a citizen of this country, and live with the simple fact that we cannot have it both ways. We cannot have absolute freedom on the one hand and the security and prosperity derived by the Rule of Law.

  20. I should mention a few additional aspects of this topic which I think should be discussed:

    First, when one combines big government with the private sector, he inevitably gets corporatism – when the powers of government are not severely limited, tremendous motivation to influence legislation (which of course translates to spending) exists for large corporate entities. I believe that this is a significant problem for the United States – we presently are socializing corporate losses and privatizing corporate gains for a number of insolvent companies who simply lobbied politicians for government money.

    How does one combat the tendency of this to happen in a scenario where the government has tremendous influence and spending power? And please remember that regulators tend to be influenced heavily by the industries they regulate – I’m not sure that simple regulation is the answer.

    Second, no mention was made of central banks like the Federal Reserve. Obviously, the Fed is a popular topic now. I’d like to hear your comments on why it is better to obtain credit from a central bank rather than through private savings. It seems that you’ve made the case that wealthy individuals’ savings are not of much use to anyone other than themselves. Is it not true, however, that one man’s savings can be loaned out to another man who would like to open a business and employ others? I somewhat see this issue as analogous to organic foods versus genetically modified foods. Organic foods take work, time, and patience to create and are sustainable in the long term; genetically modified foods, on the other hand, are very easy to produce but possibly have long term negatives yet unknown. For the purposes of my analogy, organic credit comes from savings, whilst GMO credit comes from the Fed.

    I’d like to hear your thoughts on inflation. Keynesian economic theory, I believe, accepts inflation as a necessary evil. However, I personally see inflation to be quite harmful as it diminishes the motivation to save for one’s own future. Since big government, given time, tends to necessitate creation of sizable amounts of money through central banks (ref. Zimbabwe for an extreme example), isn’t inflation a natural side-effect of big government? Also, what do you think about fractional-reserve banking?

    Finally, I’ll end with a comment rather than a question. One of my biggest problems with a far-encroaching government is that it tends to remove many financial and life risks from the individual (or the business, as we’re seeing now) and replaces it on the whole society. Risk, I believe, is crucial in preventing people from doing stupid things. When the government is always there to help bail us out, we’ll tend to exhibit impaired decision-making abilities. Respect for risk is absolutely necessary to ensure that individuals act in the most prudent way and is absolutely necessary to ensure a sustainable economic situation. I do not believe that large government can adequately protect the existence of risk – the desire for politicians to please their voters will inevitably cause them to provide sizable, ever-growing safety nets.

    I hope you don’t mind my big [inflated] comment!

    Best,
    Andy

  21. I’ll make a few points and would like your response.

    I think that your argument that government spending “lifts all boats” is a little short-sighted. Yes, I will not dispute that when the government spends on infrastructure, it does contribute to economic growth, but it is only short-term economic growth. Your examples of the Hoover Dam, the TVA, and other public works projects are great specters of this. Yes, there is a small population of people that is permanently employed to keep these projects operational after they are completed, yet at what cost?

    I’ll refer you to the latest numbers from recovery.gov, which tracks the current “stimulus” being propagated by the Obama administration. In my state of Colorado, over $2.6 billion in funds have been allocated for new project contracts and grants. Yet, only 8,111 jobs have been created. After some basic arithmetic, that comes out to approximately $325,000 per job, many of which are not long-term, nor are they infrastructure-related. I doubt that many private-sector firms could pay that much per job for the same results and still be in business. You may argue that investment in the infrastructure is important (and I agree), but it does not matter much to have a greatly improved highway system if one cannot afford a car (since the market for cheaper used vehicles was greatly diminished under the Cash for Clunkers program) or the gas (the price of which has been increased greatly our reliance on cartel-supporting foreign sources of fuel, rather than allowing for drilling within our oil-rich lands and coastlines).

    Now, seeing as we are borrowing tremendously against the future economic prosperity of this country with the current stimulus, I want to know your position on how exactly we can continue to finance such a massive debt when the Federal government cannot afford to make the interest payments on its borrowing, much less actually begin to repay it without massively increasing taxes. The U.S. national debt currently stands at just over $12 trillion. This, of course, does not include the unfunded liabilities of Social Security, Medicare, and Medicaid. Factoring in these programs, the total amount of debt (at the time of this writing) for each American is over $384,000. I don’t have that kind of cash sitting around, and I will bet that you don’t either.

    As you stated, the Federal government serves as the “lender of last resort,” via our central bank, the Federal Reserve. Since our lawmakers refuse to balance the Federal budget, yet will not raise the taxes required to pay off such a monstrous debt, the only other viable method of repayment is inflation of the dollar. The Federal Reserve (“Fed”) has been working quite nicely at this over the past few years. Since the beginning of 2008, our money supply has increased by over 120%. This is an unprecedented amount of injected liquid capital into the economy. However, what consequences will this have? During the Carter administration, the money supply was increased by 13-14%, in the name of spending our way out of that recession. The result was double-digit inflation and interest rates.

    We’re already in a recession now. Unemployment is over 10%. With such a large expansion of the money supply, there is no way around facing massive inflation and skyrocketing interest rates, in order to counter the inflation. With these two factors, businesses will take even larger losses and will likely have to let go of more workers.

    That doesn’t sound like “lifting all boats” to me.

  22. No, I don’t mind your “inflated” comment, Andy — not at all.

    On the dangers of corporatism, we are in full agreement. I do not believe, however, that government in this country has sought to take over any of the private sector. On the contrary, mega-sized corporate interests have pretty much been the ones doing the taking over; Congress seems very much to be in their pockets, especially the conservative side of the aisles of both houses. The recent bailouts of Wall Street and Detroit have been forced on both the Bush and Obama administrations to avoid a total collapse of our economy. This is because companies have been allowed too long to grow too big and many are now too big to let fail. The question now is: How do we undo the damage that too much freedom and too much corporate success have wrought?

    It is not better to obtain credit from a central bank than from private savings, Andy. But when banks stop lending because they have acquired too many “toxic” assets, the Fed becomes the lender of last resort. Further, big banks aren’t doing the job of lending the way they used to with all the mergers that have taken place in recent decades. Mortgages that are made by local branches are then resold and packaged into derivatives and hedge funds. Then they are sold and resold again and again like stacks of poker chips for short-term profits making money for the brokers — the money changers. This is not investing, not in my view. This is gambling. As to the wealthy individuals’ savings — ask yourself into what savings instruments the wealthy are most likely to put their money. Passbook savings accounts? CDs? No, the wealthy put their money into long-term physical assets like properties, they put their money into government treasuries and municipal bonds sapping tax payers for interest and dividends, and they put their money into overseas numbered banks accounts to avoid having to pay taxes. Into these vehicles, money does not circulate and it does not multiply.

    I do believe that inflation, at least a measure of it, is a necessary evil, Andy. This is because as the economy expands their is a greater demand for transaction money as well as asset money. If we’re going to have economic growth we’re going to have some inflation regardless of the size of government. But, yes, expansion of the money supply by government also causes inflation, belated inflation — cost push inflation. This is because the diminished value of dollars when too much of it is printed causes an increase in resource costs for production, thus increasing costs to consumers because businesses are not going to voluntarily absorb the higher production costs.

    Fractional-reserve banking is a universally accepted concept in modern banking practice. Every industrialized nation today employs it to ensure that the money supply does not expand too rapidly, especially during periods of economic expansion. Since you ask about it, I begin to suspect that you are a fan of proposals to return us to the gold or some other monetary standard and that you might be baiting me for a subsequent Ron Paulian or Austrian School of Economics pontification.

    I like what you have said about life risks, Andy. But I do not believe that they necessarily prevent people from doing stupid things. Government does have a role, a necessary role, in protecting us from ourselves as most people, in the pursuit of their day-to-day lives and near-term wants (happiness), do not sufficiently appreciate the nature of risk. Further, they are routinely exploited by those who are more adept at taking advantage. As Mark Twain once said, “Let us be thankful for the fools. But for them we could not be successful.”

  23. I neither coined the term nor conceptualized the idea, “A rising tide lifts all boats.” The aphorism is attributed to John F. Kennedy. No doubt, economic advisors of the time and his speechwriters actually provided it to him for his defense of government spending against opponents’ claims that investments in the nation’s infrastructure are merely excuses for pork barrel spending. While it is certainly true that much of the government spending for bridges to nowhere and airports to where there is scant air traffic demand is wasted, I doubt that you would argue that federal dollars to build the Interstate highway system, power distribution grids and port facilities have not had residual effects in terms of nurturing and sustaining economic growth. True enough, the initial construction efforts employ a limited number for a limited duration; therefore the initial government spending creates only short term jobs. But the residual effects from these kinds of capital investments benefit many future enterprises and generations of workers. Wink – wink… just think of all the black jack dealers and chorus line dancers in Las Vegas whose jobs were made possible by the city lights powered today by Hoover Dam.

    I am as concerned as you are by the deficit and the recent dramatic growth in our nation’s debt. But I have faith enough in the U.S. economy to believe that we will one day find ourselves out of this money pit we’ve dug for ourselves. Once we are out of it, we cannot afford to go back to business as usual, however. See my latest blog posting, Overcoming the Great Recession ~ Seven Things We Need to Do http://kgarry.wordpress.com/2009/11/25/overcoming-the-great-recession-seven-things-that-we-need-to-do/.

    Yes, inflation is a constant worry. But, with the fiscal and monetary tools available, we can only fight one problem at a time. Look for the Fed to start incrementally raising the discount rate in the near future. The only alternative to Administration and Federal Reserve interventions is to let loose of the yoke and hope that our economic airplane recovers “someday” on its own. See my earlier blog posting, Our Economic Airplane ~ Why Decisive Action on Healthcare Reform is Critical to Economic Recovery http://kgarry.wordpress.com/2009/07/17/healthcare-reform-decisive-action-now-or-crash-n-burn/Classic.

    Classic economic theory says that, in the long run, market economies will recover on their own. But Keynes famously said, “In the long term we are all dead.” Either way, I question whether we are still a true market economy or that we have become a corporatocracy.

  24. I think the only two things I’d follow up on are to clarify my concerns about corporatism. I’d suggest that the only way to prevent corporatism is to prevent the government from having the authority to provide anything of benefit to those that want corporatism…Basically, I’d argue that rather than finding out a way to reduce corporate influence on Congress, it’d be better to reduce the power of Congress so there’s no motivation for corporations to influence it…if the Federal Government doesn’t have sizable power then corporations won’t waste their time.

    Obviously, you and I have different opinions on the role of government in one’s life, so I doubt we’ll come to an agreement here, but I sincerely believe that there is no way to prevent significant private sector influence on a large government. Only a small government can prevent the formation of the motivation for such influence.

    Second, regarding risk, I’d say that absolutely the average person doesn’t sufficiently appreciate risk – lack of appreciation for risk is what happens when you remove the consequences of excessive risk taking. That’s the problem. We need to appreciate risk once again so we’ll be forced to quit making thoughtless, short-sighted decisions and to live within our means.

    Having said all this, I honestly hope you’re right – only time will tell. My conjecture, however, is that eventually Fed interest rates will rise, and we’ll feel tremendous pain from living outside of our means for so long…our trade deficit will finally catch up to us, our over-regulation of small businesses will finally catch up with us, the world will no longer provide for our rampant levels of consumption, and stagflation will set in. Or, interest rates will never rise and we’ll simply destroy the dollar. Either way I just don’t see how spending more [borrowed and/or inflated] money will get us out of this mess. But only time will tell – the randomness of the economy never ceases to amaze me. Like I said, I hope you’re right.

  25. We both would like to see the influence corporate interests have on government diminished, and dramatically. We can celebrate some common ground, Jamey. Yahooo! But Congress is never going to agree to give up the powers granted by the Constitution, otherwise we’d have a Term Limits amendment by now. Virtually everyone I discuss this with agrees that our representatives should not be allowed to make Washington a lifetime career. We might as well be realistic about it. The only realistic way to limit corporate interest influence is through Executive Orders curtailing lobbyists issued by sitting presidents and the polling place — out with the old and in with the new every mid-year election. See the latest news on this front at ABC’s article http://blogs.abcnews.com/politicalpunch/2009/11/lobbyists-furiously-lobby-white-house-to-preserve-lobbyist-power.html.

    Regarding risk, Jamey… consequences or no, the average man and woman does not make wise decisions — decisions based on reason. Decisions are made emotionally. They are made based on six human failings, which are: lust, envy, anger, avarice, vengeance, and worst of all — the denial of truth. I owe this insight to my reading of Dean Koonz’s latest book, “Your Heart Belongs to Me.” I know, I know… Koonz writes scary fictional novels. But they’re so popular because Koonz captures in them human nature.

    We meet again on common ground in your last paragraph, Jamey — your concerns about how we will emerge from the other side of this economic down turn. Yes, the conditions we have wrought by the past political and economic choices (products of human failings) have set the stage for generations having less than their parents had before them. But over-regulation is not one of the mistakes we’ve made, not from my perspective. Failing to enforce the regulations put in-place and to revise said regulations to keep pace with technological and market place changes in the economy since the end of WWII is what has set us up for the Big Fall.

    The “randomness of the economy,” as you call it, and I suspect that you are referring to what economic text books call the “normal” business cycles of expansion and recession, are mostly the result of political limitations — lag brought on by election cycles, the inconsistency of taxing and spending measures brought on by the fickle nature of the electorate, and overreliance on monetary policies to stabilize the economy.

    I could be wrong, but I don’t think so. At least, no one has been able to offer sufficient facts or make good enough arguments to convince me otherwise. But, as you say, only time will tell. Our best hope, at least for the next three years, is that Obama and his economic advisors have it right.

  26. Something to consider, as well as the difference between public and private debt, and the various number games that can be played with them, there must also be consideration of public and private wealth.

    Private wealth is very easy to make sound good. Every person sitting in their home gets individually richer with private wealth. Pure and simple, their bank balance goes up.

    Public wealth is harder to explain in an appealing manner. Public wealth means that the society, as a whole, gets richer. This is usually thought of as the government bank balance going up – in which everyone has a share. Since the only useful consideration of wealth is as more than just liquid capital, this often appears to be a loss to public wealth through spending on infrastructure while as a net measure public wealth goes up because the completed infrastructure is worth more than the liquid capital it cost.

    Both of these are needed, and in fluctuating proportions. There are times when immediately available liquid capital is needed, and there are times when asset capital is needed, at both public and private level.

    A third form of wealth, frequently forgotten but crucially important, is social wealth. This means wealth that cannot be easily measured through assests and liquid capital as its basis is, for want of a better term, social good. The guy who came up with this and employed it won a Nobel Prize, and it works. Yet it is still not considered.

  27. How true. It is one thing to total new products’, structures’ and services’ values in dollars and cents using cost figures, then normalize the sum to strip out the effects of inflation and deflation for a snap-shot assessment of our nation’s wealth (GDP). This is the most comprehensive and reliable measure we’ve got, but it is, after all, an imperfect measure. It says nothing about the content or social good of the productivity nor does it say anything about the value of accumulated goods or the on-going utility derived from past services. It’s quite another thing, as you point out, to measure public wealth. The concept is good, but problematic; it’s components esoteric. We can easily understand and measure public debt (accumulated deficit spending at the national level), but there is no reliable or consistently accurate way to understand the value of public assets. Appreciation and depreciation must be considered, and just how can we assess the value today of the St. Lawrence Seaway, the interstate highway system, Hoover Dam, or the space program and our visits to the moon? And of what value are our bridges today that are falling apart? With no one to bid on these things, there’s no way to tell. Then, there’s the social wealth that you mention. Ahhh, would that we truly could measure this.
    A Canadian health epidemiologist, Michael Pennock, has refined/westernized a model to measure public happiness, or Gross National Happiness (GNH). It’s based on Buddhist ideals suggesting that beneficial development of human society takes place when material and spiritual development occur side by side to complement and reinforce each other. The four pillars of GNH are the promotion of sustainable development, preservation and promotion of cultural values, conservation of the natural environment, and establishment of good governance. Using Pennock’s model, the United States fares poorly — 114th out of 178 nations measured by his metrics http://en.wikipedia.org/wiki/Happy_Planet_Index. Perhaps, in a social context, we are bankrupt.

  28. Big Gov is on diplay, how easy people forget what Big Gov does to the free market. Big Gov equals depression. Does the Gov spend your money better than you do?

  29. You obviously don’t know your history, Levi. Our economy has waxed and waned ever since the end of the Second World War and our government has grown through both Democrat and Republican administrations. This time around, the economy tanked precisely because our big government chose to look the other way while innovative financiers lined their pocked with middle class dollars.

  30. No, the economy tanked because the government removed risk from large lending institutions, creating systemic moral hazard. This, coupled with the excessive liquidity (supplied by the Fed) is what caused much of what is going on.

    If the free-market risk mechanisms were in place which would normally prevent credit from being extended erroneously, the bubble could not have been inflated. Further, if credit had been scarce, as it should have been given our nation’s level of savings, the loanable funds would not have been available in the first place…but, the Fed intervened with low rates and ensured excessive lending to uncreditworthy individuals, which not only caused widespread defaults but also bid asset prices up to an unsustainable level.

    Now the government is doing the same stuff – guaranteeing loans, promoting low rates at the Federal Reserve, creating regulatory barriers to entry with favor large businesses – thus we will not exit this recession/depression for quite some time.

    Blaming this crisis on greed, as it appears you’re trying to do, is like blaming plane crashes on gravity.

  31. Well said, Andy. I agree with almost everything you said except the comparison between the recession and airplane crashes. Gravity is a huge factor! When an airplane looses either thrust or lift or a combination of both, gravity cannot be kept in check. Likewise, when expansions run their course for whatever reason, greed can no longer reap rewards. Businesses protect their positions and investors become adverse to risk. Crash!

    It is also true, Andy, that along with the low interest rates courtesy of the Fed, the Fed, the SEC and FDIC looked the other way as financials came up with new and more profitable, mortgage-backed investments that were badly over-rated by Standard and Poor’s and Moody’s.

    When casting blame for the recession, there’s more than enough to go around.

  32. If small government means no FDA, no regulations so Big Industries can walk all over people and prey upon them, the outsourcing of American mfg so that a few monopolies can make a profit at the top, no social security, no Medicare, no EPA, etc etc…then that isn’t what I want for the rest of my life or for my grandchildren.

    From the time of the 1907 Tillman Act up to the
    2010 Citizen United ruling we controlled corporate spending and influence in campaigns. Without that restraint the money was obscene. As if money buys real loyalty or intelligence. I just buys shills/whores whatever word you want to use.

    I’d rather we had SMART governement where legislators actually worked for us (Americans & our American infrastructure & our future) rather than for their own campaign funds and their next job as a lobbyist. To that end we need real campaign finance reform to prevent outside money beyond some minimal contribution per person per candidate.

    This current election was a joke in terms of dollars spent (dollars that could have actually insured every American in America or built bridges & better transportation systems and got us started on sustainable energy future). It was a joke on us as we are losing our democracy to the god Profit. ie: Feingold…the most independent Senator: didn’t vote for wars or tarps etc. Replaced now with just another wealthy Wall st. shill.

  33. Thank you for your comment, GrannyBG. I share your lack of enthusiasm.

    In response to an email from one of my conservative readers who said, “It will be an interesting next two years,” I offered the following:

    What’s going to be (yawwwn) interesting the next two years is watching nothing happen in Washington. Gridlock is the likely result of a divided Congress and a president willing to use his veto pen to protect as much of the progress made in the last two years as possible. No, that’s not right either. It’ll be interesting to see what the Republicans are going to come up with that will magically restore American jobs before 2012.

    I anticipate the lame duck Congress will extend tax cuts for 98 percent of Americans, like the president wants, and abolish Don’t Ask Don’t Tell. Needed infrastructure and education investments likely won’t happen now, neither will Cap ‘n Trade. So, the only losers from these two measures will be the wealthiest, who by the way, won’t lose much, and homophobes.

    Opa

  34. Wow I found a nest of liberal swill here.
    Odumbass has not managed to do anything in two years except put democrats on the endangered species list.
    Oh, yeah shove a hugely unpopular and very probably unconstitutional health care system upon Americans.
    He also put the country further in debt than we have ever been. I do not know about you Jim, but in the real world you must have a way to pay off your debts. You do not just run up another credit card.
    The big 0 is a ZERO-Loser, but here is what really sucks<'dont get excited' most likely things will begin to get a little better and the big Zero will reap the reward and wind up getting reelected.
    There is no explaining or convincing broken people like so many of you here what must be done, so many of you seem to think the government has unlimited funds and people do not mind working harder and having more taken from them, and it is OK for someone like the octo mom to pump out eight or fourteen kids with no means to support them and then go on welfare so her neighbors can pay for them. Well octo mom is a scumbag and a criminal an so is that way of thinking.

  35. It would be a waste of time to even attempt responding to your rant, Robert. I will say this though, some people have the strongest opinions about things they know nothing of.

  36. What kind of public sector is better, small or big? How do the strategies of New Public Management (NPM) like downsizing and contracting out of public services, privatization, decentralization, deregularation, Public-Private partnership make an efficient and effective public sector? Is small always beautiful?

  37. Your analysis falls short on three counts. First, you assume that taxation has no affect on behavior. It does. Higher taxes discourage work, risk taking, and investment. These activities are all much more important than consumption for economic health.
    Your second false assumption is that saving is simply held off spending. This is not true. Savings don’t go in the mattress. They go to the bank. Banks lend out this money, helping finance new ventures and grow the economy. In other words, savings, at least in the bank, is basically another word for investments.
    Third, you assume that consumption and consumption alone is the only important factor in the economy. Of course, demand is important to any economy. Businesses need people buying their goods in order to be successful and expand. However, businesses also need investment capital to start in the first place. The high taxes that you have proposed would kill off investment and savings. These are the very investments and savings that businesses rely upon to get the capital to expand and invest in their business. Therefore, despite more demand, the economy would create less new jobs and businesses, mostly due to a lack of investment.
    I would be interested to see how you respond to this. You are obviously a knowledgable person. However, I do disagree with your premise.

  38. I’m sure that my simple analysis falls short of the whole truth, but it is not because I assume that taxation has no effect on behavior. Of course it does, and Congress, both sides of the aisle, knows it does. That’s why our tax code is so messed up with so many loop holes and inequities. But reducing personal income taxes for the wealthy has demonstrated over the years that it has little to no motivational effect on investment for the purpose of expanding production or creating job opportunities for the working class. What motivates business to invest in new capital is demand or the prospects for increasing demand.

    As for my second false assumption, according to you, you are obviously confusing the two terms, saving and investment. They are not the same. The classic definition of saving is disposable income not spent or deferred spending, http://en.wikipedia.org/wiki/Saving. What one chooses to do with savings may include stuffing it in a mattress, true, or any number of other “no risk” choices like passbook savings accounts and certain bond purchases. Investment involves assuming risk in the hope or expectation of greater returns such as higher interest, dividends and capital gains http://en.wikipedia.org/wiki/Investment. The terms are related, but they are definitely not the same.

    Business invests when it returns a portion of its profit to expand or improve production. But this kind of investment doesn’t happen just because dollars are available. Dollars are currently abundantly available with the lowest interest rates in years. Also, the business sector of the U.S. is currently sitting on billions, saving it for investment opportunities not yet anticipated http://www.qando.net/?p=7779.

    No, sir, I do not assume that consumption is the only important factor. I do maintain, however, that it is the most important. It has been estimated that seventy percent or more of GDP is generated by private sector demand. But demand is not simply the aggregate desire to buy goods and services. Demand also depends on consumers having the ability and the willingness to spend.

    Business lobbyists have claimed that companies are sitting on all this cash because of uncertainty. Privately, however, business leaders are saying that it is because they don’t see good prospects for improved demand. Which is it? Maybe some of each. However, with the tax cut compromise the President and Republican leaders have negotiated and got Congress to pass, this should now be a moot point. The deal includes investment incentives for business. Therefore, businessws will now either expand or they won’t based on the economic environment and prospects for profit.

    So long as businesses can profit more by reducing domestic labor costs, eliminating jobs for Americans and importing foreign made goods, they will do so. But at some point, demand will fall precipitously with so many Americans making so much less or not working at all. It’s analogous to killing the chicken that lays the golden eggs, trading long-term economic strength for near-term profits.

  39. Your blog article on basic macroeconomics made me smile.

    Thank you.

    It’s somewhat of a tangent from Economics, but why isn’t a discussion of big v. small government based on a comparison of countries’ living standards or other positive characteristic related to some measure of size of government?

    I think the result would save us from having to listen to over half of the Libertarian blah-blah-blah.

    I once stumped Walter Williams by asking him where in the world there was the kind of government he advocates. He was of course stumped for a few minutes, although finally and hesitatingly, he offered Malaysia!

  40. Please correct that to Singapore!

  41. P.S. That’s Singapore, where the government owns 58% of the total land area of Singapore, not counting land that has been sold to statutory boards (and still is NOT out of the land aqcuisition business), and has a heavy hand on all business development including real estate.

  42. Thanks for your comment, Trey.

    He must have meant Singapore. The wife and I visited there for a couple of weeks just this summer. It’s a clean, prosperours little country with no visible poverty and very happy people.

    The fiscally conservative crowd continues to amaze me with their myopia about taxes, free markets and government spending. Everyone should have to visit Norway, or Denmark, or Singapore for a week and see how they, the vast majority of them anyway, live. What an eye-opener.

  43. Fabulous article and ensuing blogs! I feel like I just took a course on Macroeconomics (to complement my book, Small is Beautiful). Just brilliant!
    I found this blog searching for information on Big govt vs Small govt. My theory, based on history I’ve studied and current events, is that small govt doesn’t necessarily mean a good gvt or a happy populace, the reverse could be true as well, big gvt isn’t always great for the people either. Other factors and variables must be considered. I liked that you mentioned the Gross National Happiness factor. It’s something I believe many Americans should read up on. We are really a miserable nation. Having lived overseas for several years in Europe, I can attest to that from personal experience and without the need of the GNH scale.

    But such a great blog!
    What an interesting dateline of reading as well. We traveled from a period where 70% of Americans were hollering for the Public Option during the campaign, to a period where, according to the conservatives and Tea partiers NO ONE wanted even to reform the broken health insurance system…???
    So we got a mish-mash result with no public option, and then a Republican controlled congress due to that… Ironic. Short memories will be our undoing.

    I’m a new Social Studies teacher, and have discovered from reading this blog that I too am an Elitist, at least educationally, not socially(not rich). Graduated Magna Cum laude in Anthropology/Sociology and took a Masters in Education degree with honors. Now I’m applying for doctoral study in Anthropology.

    I agree with you, the best and the brightest should lead (and teach). Why are politicians and hysterical parents in control of our schools? Why aren’t people like Harvard’s Howard Gardener our educational leadership? Why is a publishing manager is tapped to run NYC’s schools and not an educator (like you)? Who is evicting Thomas Jefferson from our children’s textbooks? Not educators!

    As a student of history and the noble Humanities I am always dumbfounded by conservatives and their ilk who, as you put so eloquently, amaze us with their myopia about most things economic or humane. It’s fairly obvious they rarely crack a book of historical nature (not written by Palin or Beck) and therefore have no perspective for their many ludicrous socio-economic claims. My least favorites and oft-repeated are that labor unions and minimum wage will destroy business, the economy, yes, even the world. They haven’t yet, here or anywhere else in the world where they exist.

    I have been investigating moving to Norway, the land of my ancestors. They seem so civilized and happy without all the screaming and rhetoric. Clean air, beautiful cities, great schools, long lives, universal healthcare(long lives), and they even have a monarchy! Romantic! A monarchic Democracy, with socialist/humanist values. Perhaps that’s why it’s been rated several years now as the best place to live on the planet? It’s eclectic style of government provides a positive environment for ALL to flourish, not just the robber barons.
    They must weep when they see the oportunites to progress that we’ve squandered here in the USA.

    I think Archaeology may be a lovely way to get there and perhaps stay. All those Viking ships and treasures to dig up or dive for; treasures, ironically, stolen from others.
    The laws of supply and demand never really change, nor the need for taxes.

    You give me hope in our educational system.
    Keep it up.

  44. Wow! Will Rogers once said that he could go a whole week on nothing more than a good compliment. I could probably make it in overdrive for a month or more on this one.

  45. Sorry, it took me so long to respond. I don’t know where you get this idea that “reducing personal income taxes for the wealthy has demonstrated over the years that it has little to no motivational effect on investment for the purpose of expanding production or creating job opportunities for the working class.”. This is simply not true.

    As you probably know, elasticity of taxable income (how much taxpayers adjust their income for taxation) is one of the most hotly debated topics among empiricists. However, all of the empirical evidence shows a very strong elasticity of taxable income for upper-income taxpayers. This would suggest that lower tax rates do, indeed, affect decisions very highly, particularly for upper income taxpayers.

    Other empirical evidence suggests that lower marginal tax rates increase entrepeunerial entry and duration of entrepeunership. I have attached an empirical study from the Small Business Administration Office of Advocacy demonstrating this.

    Your point about saving is true, but it does not refute mine. In my first comment, I pointed out that savings are very rarely “stored in mattresses”. More commonly, savings are put into the bank. Banks lend these savings out. Therefore, they don’t “fall out of the economy”.

    I don’t believe that there has been any proof that Businesses are sitting on a large amount of money (if there is, then I apologize). However, if they are, they are probably either storing it in a bank or investing it.

    I don’t know how you would know what businessmen are saying in private. However, they obviously want government to pursue policies that benefit them and give them a healthy environment to invest. Why they would advocate policies that do not achieve this is unknown to me?

    Also, there is plenty of reason to be uncertain right now. In the past two years, government has made unprecedented expansions into the private market, and many more are on the legislative agenda (at least before Republicans took back the house).

    The problem is not, and never has been, lack of demand. It is lack of production. Declining demand has never been shown to cause economic downturns. Malinvestment causes regular and cyclical downturns. Larger downturns are typically caused by some sort of government intervention.

    The problem with government injecting demand into the economy is that government cannot put money into the economy without first taking it out. New Demand can only be created by more production and growth.

  46. I do not doubt your sincerely, Jim is it? I’m sure that you actually believe what you are saying about taxes and their relationship to supply and demand. But the discipline (if I might call it that) of “established” economic theory simply does not support your beliefs. The concept of elasticity of taxable income isn’t even taught at the undergraduate level in macroeconomics. It appears nowhere in college textbooks. In fact, the Laffer Curve itself is barely even mentioned, and usually with criticisms from most economists of today. Elasticity of Taxable Income (ETI) is discussed at the graduate level with some proponency, but support for the long-term effects of increased marginal tax rates on the rich is lacking among mainstream economists.

    There is one good academic study on the subject available on-line. It can be found at http://www.econ.berkeley.edu/~saez/saez-slemrod-giertzJEL09elasticity.pdf if my readers are interested. It would probably be over the heads of most as I myself, a student and former teacher of economics, struggled to follow with clear understanding through the 78 pages of the study’s report. The conclusion of the report states, and I quote, “Estimates of the long-run effect of elasticity of taxable income are plagued by extremely difficult issues of identification, so difficult that we believe there are no convincing estimates of the long-run elasticity of reported taxable income to changes in the marginal tax rate.” Graphics of “empirical” data included show what common sense would suggest: As marginal tax rates on the very rich decline, their incomes rise and tax revenues decline — not just in the short-run, but year after year after after taxes are reduced. So, the myth that increased economic activity resulting from tax cuts and subsequent taxes at a lower rate on these gains more than off-sets the cost to government for reducing the taxes is debunked.

    I am convinced that informed individuals who still believe in supply-side economics do so for political purposes. One must believe that supply creates its own demand to buy the economic argument of conservative politicians, namely — lower taxes and reduced government spending. When the rubber hits the road, however, politicians are quick to support lower taxes (that buys them votes), but less anxious to cut spending in meaningful ways.

    On January 3, 2007, George W. Bush proclaimed, “It is also a fact that our tax cuts have fueled robust economic growth and record revenues.” Then Andrew Samwick http://www.dartmouth.edu/~samwick/, who was Chief Economist on Bush’s Council of Economic Advisers at that time, responded to the president’s claim saying, “You are smart people. You know that the tax cuts have not fueled record revenues. You know what it takes to establish causality. You know that the first order effect of cutting taxes is to lower tax revenues. We all agree that the ultimate reduction in tax revenues can be less than this first order effect, because lower tax rates encourage greater economic activity and thus expand the tax base. No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one.”

    Professor Samwick wasn’t on the president’s Council of Advisers after that.

    Also for you and my other conservative readers to chew on, the Congressional Budget Office (CBO) estimated, before Obama cut a deal with Congressional Republicans, that extending the Bush tax cuts of 2001-2003 beyond their 2010 expiration will increase deficits by $1.8 trillion dollars over the following decade. The CBO also completed a study in 2005 analyzing a hypothetical 10% income tax cut and concluded that under various scenarios there would be minimal offsets to the loss of revenue. In other words, deficits would increase by nearly the same amount as the tax cut in the first five years, with limited feedback revenue, if any at all, thereafter.

    Your attachment, of course, did not come through with your posted comment on my WordPress blog. I have gone the the Small Business Administration’s website looking for the study you mentioned, but have found nothing about it. Perhaps you could send it to me as an attachment in response to this message.

    As for business sitting on billions of dollars, it’s been reported extensively by the “main-stream” media. Business lobbyist’s have attempted to justify it claiming uncertainty in business environment. Economists attribute it to lacking demand and slow projections for recovery. You can easily check this out yourself.

  47. Elasticity of taxable income is a widely agreed upon topic among economists. It definetley exists. I honestly have no idea what your talking about with it being talked about in college courses. That does not meant it does not exist. In fact, it means absolutely nothing. If all of the empirical evidence points to high elasticity among upper income taxpayers, I can guarantee it exists. I have no idea what you mean by “established” economic theory. Every economist agrees that the laffer curve does exist, most would also say that we could higher than the current rate before we reach it.

    I have read the study you posted before. It shows exactly what I said. A high ETI among upper income taxpayers. Now, I, nor any mainstream supply sider, have ever said taht every tax cut pays for itself. You are committing the ad hominem fallacy here. It is a documented fact, by every economist, that there is a revenue feedback from tax changes. Surely, you wouldn’t disagree with every mainstream economist and simple logic on the idea that there is at least some reaction to tax changes.

    You next comment shocked me a bit. You said that informed individuals who support supply side economics only do so for political purposes. This is simply untrue. This statement shows an utter negligence of economic history and theory.

    You misunderstand Say’s Law, just like Keynes did. It is true that production must increase in order for demand to increase. When people demand goods, they can only buy with money. The money that the have is, of course, nothing more than whatever they have produced or “supplied”. Therefore, the only way to grow an economy is to increase production and overall supply.

    I actually believe that anyone who still believes in “Keynesian Economics”, only believes so for political purposes. Keynesianism is full of logical fallacies. Henry Hazlitt wrote a book in 1959 called “The Failure of New Economics”. This book was a line by line refutation of Keynes. It was a devastating logical blow to Keynes. However, proffessors continued to support Keynes. Why? Because proffessors had a tendency to dislike the “chaos” of the market economy. Many saw Keyne’s ideas as an excuse to impose their ideas of “social justice” on an economy. Many wanted government to carefully manage economies for societies “preferences”.

    As for your last paragraphs, I would like to say that you need to stop claiming a false consensus among economists. The fact is that there is not consensus. Shockingly, free market economists think that government uncertainty has more to do with problems and progressive economists think that it is demand. Claiming a false consensus is not constructive to economic debate.

    I will now address your point about business. Harvard did an extensive 40 year study on government spending’s affect on business spending. The results shocked the reseachers. They found an inverse relation ship between government spending and business spending. Here are the reasons they gave for the shocking result:

    “Some of the dollars directly supplant private-sector activity—they literally undertake projects the private sector was planning to do on its own. The Tennessee Valley Authority of 1933 is perhaps the most famous example of this.
    Other dollars appear to indirectly crowd out private firms by hiring away employees and the like. For instance, our effects are strongest when unemployment is low and capacity utilization is high. But we suspect that a third and potentially quite strong effect is the uncertainty that is created by government involvement.”

    It is very important for me to note that this study did not examine the “Crowding Out effect” from domestic borrowing or the new taxes it would take to fund this spending. This spending, for lack of a better word, was a free lunch. Yet, it failed to stimulate the business spending. This would show that uncertainty does play quite a role in business expansion.

    Here is the study from the SBA:

    http://archive.sba.gov/advo/research/rs252tot.pdf

  48. Interesting blog but not always accurate. For example, the comments on savings and investment. As far as the National Income Accounts are concerned savings and investment are an identity by definition. This identity holds true because investment includes inventories. Given the identity, if the US wants to be more competitive by increasing investments in whatever, then we can do that by increasing savings. Having said that, there is never any assurance that investments will be made in the most productive way. Thanks again for an excellent discussion.

  49. I would argue that savings and investments are not the same thing, John http://www.finweb.com/financial-planning/saving-vs-investing.html. Saving is just disposable income not spent — withheld from the economy until a later, perhaps better time for either spending or investment. Investment is a form of spending wherein a greater return is anticipated, as in investing in a brighter future by spending on education or buying capital to increase production or make it more efficient.

  50. Politicians do not want you to know they cannot solve the problems in Washington. They know it, and they hope you won’t figure it out.

    Politicians cannot make the changes that are required to turn things around. They cannot balance the budget. They don’t even talk about repaying the $15 trillion we owe. We can bang our head against a brick wall again and again, and it will always hurt. We can send politicians to Washington election after election, and they will always fail. Or we can tell them to Get Out Of Our House – our House of Representatives.
    Politicians have created a political catch-22 from which they cannot escape. The two-party system prevents them from doing what must be done. It forces them to make promises they cannot keep. If one party tries to cut spending the “other” will use it against them. If we continue down this path, our nation will fail.

    The solution is to elect leaders who do not care about getting re-elected, do not care about keeping their party in power, and do not care about rewarding those who funded their campaign. GO has a way to make this happen.

    Consider this point carefully: politicians cannot afford to alienate voters. If they do, they cede power to the other party.

    Politicians will not pass the 28th amendment that has been circulating for years because it would reduce their power. They will not pass a Fair or Flat tax because it eliminates their ability to reward special interest groups. They will not abolish organizations like the Department of Education because they do not want to alienate teacher unions. They will not seal the borders because they fear offending Hispanics. They will not reform campaign financing because they need millions of dollars to get re-elected. They will not cut spending because it will cost votes. Politicians cannot, will not, do what must be done.

    Both parties claim spending cuts will harm the economy, but what has increased spending accomplished? Each party has championed massive bailouts, yet the situation has only deteriorated. The two sides are gridlocked over $60 billion of cuts in a $3.5 trillion budget; that’s like a dieter debating whether or not to eat the last two M&M’s in a one pound bag!

    Why do we keep sending the same people to Washington? 94% of the politicians in the U.S. House of Representatives will again be re-elected if we do not do something different. GO offers a solution.

    Our members will be choosing a candidate to compete in each congressional district in 2012. For the first time ever, Americans will have an honest chance to replace the entrenched politicians. Please get everyone you can to join our movement and elect true representatives of the people who will do the work that must be done.

    If you are willing to help lead the effort in your locale, please reply to this note with your state and district.

    In Liberty,
    Tim C
    Mark Peyton

  51. I’m sorry, Mark, if this seems unfair. However, from what you’ve written and what I see at your website, your efforts are little more than a thinly-veiled movement to replace more liberal thinking legislators with lawmakers having a Libertarian bent. No matter how many supporters you attract, you will never be able to clean house entirely. Likely, the most recent members of Congress who were supported in their campaigns by the Tea Party, will remain.

  52. There’s a whole lot of ASSUMING being done in this blog. The problem with economics is that calculations are based off of assumptions and statistics. The same study can be done by 10 people, each with the same information and figures, and each would produce different statistics based on their individual assumptions. The second you have to ASSUME something, you should step back and assume you are wrong, or at least not entirely correct.
    Numbers don’t lie, the people who minipulate numbers do. Never trust the opinion of an economist.

  53. Yeah, I’ve heard this from more than a few conservatives — not trusting facts because the numbers behind them can be manipulated. Anticipating future events, one must always make assumptions, either this or act solely on faith, trusting that principle applies under all circumstances. So, who do you trust, the pundants on Fox News who spew nothing but conservative dogma?

  54. […] As we continue to explore the merits of “big” / “small” government, consider this post, titled Big Government vs. Small Government: Which is best?  […]

  55. For a long time now, I have been, and still am, a proponent of the so-called “big government.” Why? Well, first thing is that I prefer a “smart government” that is large enough to handle a large country, but not so intrusive on people’s rights. That’s why I am a Democrat, or will be when I’m eligible to vote. In my opinion, the history of our nation proves that small government, especially those backing laissez-faire economics, hasn’t always been beneficial to this country. Sure, they were moderately acceptable when we were just starting out, but now our nation possesses a $15 trillion economy, and that is just too big for a government from the 19th century to manage. In addition, the most harrowing times in our nation’s history were harmed by the prospect of a minimal government. Take the Great Recession of 2008, for example. We had deregulated our financial markets and left us vulnerable to an economic meltdown, which promptly occurred after Lehman Brothers collapsed and the housing bubble burst. Some people may prove how big government isn’t needed during times of prosperity, but I think otherwise. The same people often complain about high taxes, a bloated bureaucracy, or an intrusive government meddling in the private sector. Yes, there are downsides to all of these things, but they are necessary in order to keep order. For example, taxes are used to build roads, fund schools, or in maintaining a strong military. And it is also ironic that the same people who call for a smaller government advocate for a big military, an expansive foreign policy, and a good infrastructure, all which require revenue from taxes. Other conservatives support the return of the management of education to the states, when there is proof in Texas that the states aren’t very good at funding education due to a restricted tax system. The federal government is the only entity large enough to fund the education system, but it also utilizes the states and local school districts to manage the education. The feds should mandate education, and direct schools to follow a national education system, rather than having each state running the schools in its own way. As for regulations, a moderate amount of regulation will stabilize an economy and keep the private sector in check, because the private sector fluctuates due to the markets and are mainly focused on making a profit, not for the benefit of an entire society. However, I am most likely wrong on some of the things that I’ve listed here. With that in mind, I say that the size of government matters on the size of the nation and the mentality of
    the nation’s citizens.

  56. i would like to know the pros and cons thanks yous very much. This doesnt help me at all!!!! D:< JESUS

  57. Pros and cons? That’s an easy question to ask, but a difficult one to answer, Nelson. At some point, governments can certainly become too big with agency overlap, corruption and inefficiencies. But unless you think you are safer and better able to compete on your own without the enforcement of laws that guide and protect us, I think you would agree that governments can be too small also. Just imagine living in Somalia today.

    With respect to the economy, spending is what makes things happen, spending by consumers, spending by businesses, and spending by governments at various levels. When the means and/or willingness to spend in the private sector declines, as it does in a recession, goverment becomes the spender of last resort.

    I don’t know if this answers your question or not. But for me, I think there’s an appropriate size for every situation, not one size that always fits. For example, we shouldn’t sustain large armies and navies in periods of diminished threats. Neither should we keep agencies in existence that aren’t performing useful services or that cannot be consolidated with other agencies. In other words, “Government should do for the people only what they can’t do better for themselves.” Abraham Lincoln

  58. My brother recommended I might like this web site.
    He was entirely right. This post actually made my day.
    You cann’t imagine just how much time I had spent for this info! Thanks!

  59. Great blog! Do you have any helpful hints for aspiring writers?
    I’m planning to start my own website soon but I’m a
    little lost on everything. Would you suggest starting with a
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  60. Always walk before you try to run.

  61. This was a very interesting article, and I think by now you have answered your own question. Just in case you haven’t, it should be evident that the parsimonious, the hauders, the tendenciers to save, have basically destroyed our society. They own it and they have destroyed it. Its a “golden egg” kind of thing.


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