Here we go, Cats, a return to the long overdue examination and discussion of matters economic.
This will be the first of a semi-regular series of posts on key economic concepts that politicians, bureaucrats, academics and the braindead lamestream meeja (with some notable exceptions) are either unaware of, or incapable of comprehending.
As someone who considers most current expenditure of taxpayers’ money by Australian governments to be an unnecessary evil, I’ve looked on in horror at the astounding increase in this expenditure as a proportion of economic activity in this country – the sum total of the latter being what is laughably referred to as Gross Domestic Product (GDP).
Keynesianism is a hastily cobbled together agglomeration of utterly discredited hypotheses. If Keynesian remedies worked, there would be no need to keep repeating them, nor would the inevitable outcomes end up being exactly the same – i.e. the opposite of what was intended (again).
Some of you would of course, be familiar with the following “equation”:
Y = C + I + G
Y is Aggregate Demand (AD or Y at “equilibrium” or GDP)
C is household Consumption
I is Investment
G is (cue spooky muzak …) Government spending
There is also a slightly different version of that equation including the net effect of exports and imports, with “+ (X – M)” tacked on at the end.
My primary quibble with the equation, if you accept its validity in the first place (and I don’t), is that government expenditure(s) might increase aggregate demand.
Some among us may argue that “government” must administer certain “public services”, including the obvious, such as national defence and law and order, i.e. policing and the administration of justice – increasingly and dangerously absent as it is in many jurisdictions across the West.
A significant proportion of expenditure by governments is entirely unnecessary and a deadweight on productive economic activity, resulting in a misallocation of resources and inexcusable wastage of taxpayers’ money. Not to mention the accumulation of public debt that will never be repaid in any foreseeable timeframe, although the regular interest bills will be (ad infinitum).
Which brings us to the concept of this Post, the “crowding out” of private expenditure by intrinsically inefficient and invariably ridiculous public expenditure.
Increased government expenditure is funded by increased taxes or borrowing (e.g. issuing treasury bonds). Increased taxation reduces the capacity of individuals to spend, save or invest their money. Governments then spend taxpayers’ appropriated monies on “public goods and services”, most of which are unnecessary, more efficiently provided within a free market, or a shameless attempt to buy off segments of the electorate, e.g. welfare recipients.
Chasing government allocated money can also be quite lucrative, given that bureaucrats invariably have no idea how to properly price anything. Two obvious examples are the “building the education revolution” and the NDIS, the latter of which sees goods or service providers charging top dollar as soon as they know it will be billed back to government.
As for “crowding out”, it’s a simple concept – every dollar that governments spend, “crowds out” a dollar that might have been spent by individuals on goods or services the latter might need or want.
Hence one of the golden rules of economics: “Individuals will always spend their own money more efficiently than governments”.
There are many sectors of the economy where the “crowding out” effect is an obvious negative for taxpayers, the economy and society. Here, we’ll briefly examine two, public infrastructure and social welfare.
One thing you can’t accuse Australian governments of (apart from exhibiting any semblance of competence in their role), is possessing a lack of enthusiasm for ridiculous, unnecessary and obscenely expensive infrastructure projects – the trifecta of political and bureaucratic stupidity, obstinacy and incompetence.
These public infrastructure projects will inevitably crowd out private infrastructure projects.
Recent obvious examples would be the light rail in Sydney and Melbourne’s suburban rail loop, neither of which would have seen the light of day if an objective cost benefit analysis had been conducted beforehand.
However, the standout example of this vainglorious spendthrift insanity is the headlong rush to destroy our previously perfectly functional electricity grid and replace it with heavily subsidised and spectacularly useless “renewable energy sources”, such as wind and solar.
The cost for Australian taxpayers of this course of action is unquantifiable and unfathomable – exactly as it is intended to be.
When did any of you willingly donate any of your money to a charity?
I’ve never done so in my life and there are no reasons whatsoever to do so nowadays. Governments “fund” charities. The latter have become beholden to that major benefactor, entirely unsurprisingly.
I refuse to donate to charities for that very reason. A portion of my exorbitant tax bill directly funds them. This unwarranted income now allows a significant number of them to be run along the lines of major corporates.
The management gift themselves special privileges hoping these never come to the attention of the public (who pay their wages). Until they do – see the case of AFFORD, exposed during the Disability Royal Commission.
Therefore, government has “crowded out” my charity change.
Hope you’ve enjoyed this post, Cats. The next topic is “Opportunity Cost”.