Friday, February 03, 2006

READER RESPONSE -- Government produces wealth

Posted by Craig Westover | 9:21 AM |  

In today’s Pioneer Press, a couple of letter writers take exception with my statement that “government produces no wealth.” In context I wrote --
The flaws in liberal economic theory are many. Liberal economics ignores the most fundamental of observations — government produces no wealth. Government can redistribute no wealth until someone else creates it. Wealth is a dynamic resource renewed by private investment in the private sector that produces it.
Here’s what the letter writers have to say.
Government does play a role in wealth

In his Jan. 25 column, "Democrats can't claim mantle of government fiscal responsibility," Craig Westover states as a "most fundamental of observations" that "government produces no wealth." I argue that major forms of wealth include the University of Minnesota, the state colleges and universities, the public school system, the earning power associated with education, the highway and street system, the difference between unpolluted and polluted lakes and streams, the difference between safe foods and drugs and consume-at-your-own risk foods and drugs, the difference between property values in a neighborhood where public safety is effectively enforced and the same neighborhood without such enforcement, our airports. The list could go on.

Minnesota was once "the state that works" because it led other states in understanding and creating and effectively managing these forms of wealth. Refusal to recognize that they even exist isn't a sound starting point for advice about how to keep our state working.


Westover's logic in his Jan. 25 column is incomplete when he says that only the "private sector" produces wealth and government does not. He must remember that corporations and individuals who become wealthy and able to pay taxes don't produce this wealth on their own. It's done with the help of the many people who work for them, and with the assistance of government, which provides infrastructure such as roads, bridges and public utilities. Government also provides services such as public education, public safety, disease control and environmental protection.

The government exists to provide these public needs that even large corporations or very wealthy individuals, like Carl Pohlad (who could actually afford to build a Twins stadium) cannot or will not provide on their own.

Moderate Republicans and Democrats like former Minnesota Gov. Arne Carlson and Bill Clinton have proven they can manage needed government services responsibly. Others have proven they cannot.
The first letter writer confuses the philosophical idea of a “public good” with the economic concept of wealth creation.

King Banaian and I disagree on the former concept -- what constitutes a public good -- but my position is that there are certain criteria that define a public good, a function that government ought to perform and that provides value. National defense and protecting the environment both fall under my rubric of “public good.” However, note that these are not, as the writer seems to imply, wealth generating activities. In fact, environmental protection is not even an option for government until there is enough discretionary wealth produced by the economy to fund it.

The argument can be made that paying for a police force through taxes is less expensive for the public than individually protecting ourselves or forming numerous private protection agencies and therefore contributes to the wealth of society by freeing more capital for investment. Nonetheless, again, until wealth is privately produced to fund such a police force, it can’t happen.

The second writer commits much the same confusion but adds the insidious germ that individual accomplishment “owes” something to society. Unconsciously, perhaps, playing the class envy card, the writer says that those who become wealthy had the help of both government and the people that work for them. True, but they paid taxes (ideally in proportion to the service they received), and they paid the people that worked for them (ideally in proportion to their contribution to wealth creation).

What this letter writer seems to imply is that the “wealthy” then owe something more. That notion supports my contention that government can produce nothing until it takes wealth, through taxation, from someone else. The “something more” is discretionary wealth produced outside of government.

That is not to argue that government should not tax, but it is to argue that government should tax only for criteria-based public goods (services that people would pay for even if government did not provide them) and not for “something more” that simply redistributes wealth.