Faith in Government Spending

"There is NO more persistent and influential faith in the world today than the faith in government spending" (Economics in One Lesson, pg. 31).  


I would certainly hope and argue that our faith in Jesus Christ is MUCH more persistent and influential, but he makes a great point in the opening statement of chapter four that we have faith in government.  Is the market stagnant?  Unemployment too high? Government is here to save the day!  From the New Deal to the Stimulus package, we believe that the government is the only player in the economy able to jump start the demand, and thus the economy. 


But money is not free, and the source is inflation and taxes.  To focus on taxation, once again we have the broken window fallacy: you only see the grandeur of the new project and the new jobs created, you don't see the diversion of resources.  Taxation destroys as many or more jobs than it creates!


Even the government knows this.  We see it in the so-called tax holidays.  On tax-free shopping days, sales boom!  Perhaps every day should be tax-free!




~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
These two chapters were rather simple to me, as no great revelation was proclaimed.  But in the video, they discussed two ideas about which I've wondered in the past.


1)  If a person wants to make $100,000 and his income is taxed, wouldn't he just work harder to get that extra money?  
Working harder to make up for taxes again diverts production elsewhere.  Man A could spend time with his family, taking them to dinner and theme parks, but instead his time (which is valued) is spent earning the extra money.  Another diversion.


2) Would taxing consumption (aka fair tax) be better than taxing productivity?  
All taxes are taxes on production because ultimately it falls back on the producer because he has to adjust his production.  If taxes raise the prices of goods, you must lower costs in other areas- perhaps lessoning the demand for labor or such.  Murray Rothbard writes, 

The consumption tax, on the other hand, can only be regarded as a payment for permission-to-live. It implies that a man will not be allowed to advance or even sustain his own life, unless he pays, off the top, a fee to the State for permission to do so. The consumption tax does not strike me, in its philosophical implications, as one whit more noble, or less presumptuous, than the income tax.

For more on this subject, see the fabulous article The Flat Tax is not Flat and the Fair Tax is not Fair by Laurence M. Vance.