Government is not a Financial Blackhole
Contrary to the economic right’s dogma, government expenditures and public investment are no less valid than private ones. It is incredible to hear the tax cuts cure-all crowd argue that government expenditures don’t create “permanent jobs”! Where…what is a permanent job in our culture? Which job is more permanent and which, particularly of late, the more productive, a school teacher or a mortgage banker?
In 1696, The Scottish Parliament passed the “Act for Setting Schools”. Motivated by the Presbyterian Church’s view that the bible, being the literal word of god, should be directly accessible to all, the Act required that each parish establish a schoolhouse and hire a teacher. In a stroke, one of the most backward, insular, and impoverished places in Europe began a transformation. It has been estimated that by 1750, 75% of the male population of Scotland could read, and every town of any real size had a lending library. Papermaking and publishing became a principal industry. A national survey done in 1795 showed that nearly twenty thousand people, out of a population of one and a half million, made their living in connection with writing and publishing; over ten thousand people were employed in teaching. Scotland’s Universities became preeminent learning institutions and assumed a leading role in the Enlightenment. Within a century of the Act, Scotland was transformed from a subsistence economy into a nation of manufacture, trade, and learning, Adam Smith’s living laboratory.
An educated public is a public asset that serves the interests of all. Only a public program can assure universal education. Transportation maritime aids to navigation, charts and harbor facilities, roads and highways - public investment in infrastructure, education, and communication are, as with the law and courts, essential elements upon which a modern economy is structured. It is the presence of such that makes the difference between developed and undeveloped economies, not, as the right tacitly assumes, genetics.
The interstate highway system and the construction of a national railroad system were both moonshot-scale projects in their time, one entirely a public sector project and the other facilitated and subsidized by the public sector. When aeronautical advocates wanted to develop air transportation, they went to the post office and Congress. The government not only designed and maintained the infrastructure that has made commercial aviation practical, but it has substantially underwritten the principal technological achievements employed. Government money and programs inspired and financed the modern computer, the silicon chip, freeze-dried food, nuclear power, Velcro, the internet, on and on.
The government has brought us public sanitation and safe drinking water, all but eliminating whole classes of infectious diseases that used to decimate urban populations. Vaccine programs, food inspection, all manner of public safety programs, police, fire and defense. The idea that the government is irrelevant to our well-being and our economy is absurd. The idea that public money is inherently wasted is an economic illusion promoted by private interests that view the government as competition for consumer dollars.
The economic right likes to talk about $500 defense department toilet seats as symbolic of public waste but now we have been exposed to the $1,400 private sector waste paper baskets. These are humorous irrelevancies, though, compared to the big-time squandering of the private sector. Confining ourselves to recent history, the so-called S&L Crisis of the late eighties, which vaporized nearly a trillion dollars in wealth, was a warm-up for the recent economic disaster. The savings and loan industry was deregulated to “get government out of the way.” As a result, a system that provided stable and affordable home financing through local conservatively operated financial institutions that worked well for decades, even if it made few billionaires, was destroyed.
These macro scale “free market” driven catastrophes have arisen from destructive private exploitation of complex underegualted markets. If we elect people to public office who do not believe in government we should not be surprised when we don’t get effective government.
On the micro-scale, one could nominate Enron, General Motors, Lehman Brothers, and AIG as examples of free market errors and mismanagement that eclipses any conceivable waste occurring in government operations. Every day, private sector businesses go bankrupt, and each such event arguably represents an erroneous misallocation of resources. Markets make mistakes, private sector entities make mistakes, the private sector is not always efficient in allocating investment dollars, it is not always frugal, and it is certainly not always in the service of the public interest.
The public sector is necessary to our well-being; its jobs and dollars are spent like any other. It is no more, perhaps less prone to error and waste in its operations than the private sector, at least so long as it operates in its native environment.
We should prefer the private sector to the public with respect to all things that the private sector can do because of its inherent democratic character, because of the political risks involved in an excessively large government, and because of the autonomic decision-making processes of the marketplace. However, the marketplace cannot provide many necessary goods and services, and only collective action can provide a sense of collective purpose, a collective identity, worth, and direction for a society.
The economy and economic activity is the sum total of private and public economic events. A tax is not a drag on economic activity unless it is not spent any more than a purchase of anything else. We have been grossly under-investing in its public sector for decades. We have significant infrastructure needs, education is massively underfunded, and we have short-changed primary public research. Investments in these areas have always paid dividends that exceed the financing cost associated with borrowing to fund them, which means we collectively make a profit on them. Until the public mind is deprogrammed and re-educated about the proper and necessary role of government in the marketplace, economic equity, vitality, and stability will suffer. We cannot hope to construct progressive economic policy if the public continues to be deluded by economic mythology.
