Wednesday, February 08, 2006

Out damn Spot

Posted by Craig Westover | 8:50 AM |  

That little feral pup is yapping again, taxing the wealth of free-market thinking to sustain his own unproductive thought. Referring to this post, he writes --
Of course government spending is just like private sector spending. Procurements, salaries and wages, agricultural subsidies (sigh), entitlements, and every other thing the government spends money on goes right back into the economy. . . .

The United States is like a giant venture capitalist, providing institutions for learning and for creating business organizations, capital formation and limiting the liability of investors, protecting those investments and savings against fraud and institutional failure, promoting innovation through the protection of intellectual property, enforcing property rights that permit the accumulation of wealth; well, the list goes on and on.
Sorry Spot, government spending is not just like private sector spending. Procurements, salaries and wages, agricultural subsidies, entitlements, and every other thing the government spends money on does indeed go right back into the economy -- but not at the value at which it was extracted.

Taxation is yet another case of the Bastiat’s seen versus the unseen. Spot points to government spending as economic activity, but fails to "see" the economic activity that would have taken place had the money remained in control of the person that produced the wealth. The latter would have produced a one-to-one ratio of cost to value. The former does not.

When a taxpayer sends the government a check for $100 to pay his taxes, he receives nothing in return. When the government spends that $100, if some benefit accrues to the taxpayer, it is less the administrative cost of supplying that benefit.

Now, in the case where the “benefit” is equivalent to the cost (including administration), then there is no loss to the taxpayer. However, government still has produced no new wealth. A brief aside.

Had Spot understood Guns, Germs and Steel, as referenced in his post, he would know that civilization is not “the thing that permits the formation and accumulation of wealth;” rather the formation and accumulation of wealth necessitates civilization (which linguistically and historically necessitates “cities”). As author Jared Diamond notes, where there were neither wild plants nor large mammals suitable for domestication, hunter gatherer cultures were forced to follow their food. Thus, they could not accumulate the wealth necessary to support a bureaucratic class.

Back to the point. I have no argument with taxation for legitimate government purposes, such as protecting the ability to conduct voluntary exchange (courts) and personal protection (police and military). As Bastiat would caution, apart from the value it provides, do not cite as an argument in favor of expanding government the advantages it has for the bureaucrat, his family or those who supply his needs; do not allege that it encourages employment.

If the taxpayer pays government $100 and receives $100 of police protection (including the cost to administer payment of the police officer) then it is the same as paying $100 for a DVD player. The exchange is equal. But, to hand over $100 to government and receive no benefit and perhaps inconvenience is (Bastiat’s metaphor) to hand money over to a thief.

If Spot wants to make the case that government provides service, then he must show that the service provided has value to him that pays for it, not that it simply redistributes wealth from him that has created it to him that has not.