Monday, June 11, 2012

Government Centered Economy

A "Government Centered Economy", who deserves credit for this very descriptive phrase? The first person I heard using this phrase was Mitt Romney. The phrase may of been around for years or conjured up by one of his speech writers, but when used to describe the new American economy it is bang on. Government needs to get out of the way and let America get back to work, the job of government is not to compete with business.

During the election President Obama said "the private sector is doing fine" he went on to say that it is the public sector that is laging at creating jobs. His answer more deficit spending to drive the economy forward by having states and localities hire police, firemen, teachers, and talking about increasing  spending on infrastructure. At the time Romney and others jumped all over this calling Obama out of touch. What they should of hammered on is that after much thought people are beginning to reject the idea of the private sector working to support the government, government should be working for the private sector.

Some view the failure of  the 2012 Governor Scott Walker "recall election' in Wisconsin as a watershed event and a sign of changing public sentiment. Simply put the problem is government jobs often pay more and provide benefits, security, and pensions that the private sector cannot afford to meet. An unhealthy system supports this, politicians give raises to government employe unions that in turn support the politicians reelections so they can get further raises, this has created a ugly cycle. This should be the crux of the discussion about the economy going forward, the size of government must be contained and reduced.

Capitalism should be defended when blamed for the ills and problems that exist within society, capitalism is really just an economic system where capital is owned by private citizens who get to determine its price and flow by interacting with one another. Capitalism implies that private citizens get to keep most of the fruits of their labor or the profitability of their capital and by its nature it creates value for those without capital when appropriate rules of fairness and honesty exist.  Individual freedom to own property and control its use leads to the most efficient allocation of resources this in turn results in the highest economic growth and prosperity.

While capitalism is not perfect the closer society adheres to its general principles the better it is for the population at large. When you place the bulk of society's power in the hands of a central authority or bureaucracy many of the natural imperfections of human decision making including the problem of unintended consequences quickly arise. Central planners with little skin in the game seldom garner enough information to make wise decisions about the allocation of resources across an entire society. Central planning tends to release corruption, arrogance, and the fallibility of human nature, when these become concentrated it should come as no surprise that governments do almost everything with less efficiency  than the private sector and at greater cost.

While politicians rush to say they want to add the "good public employees" like teachers and "first responders" they fail to mention the large expensive support system of bureaucrats that exist behind the scenes. Politicians rush to offer infrastructure like bridges but fail to address the massive waste in government spending projects as they tear up and replace perfectly good sidewalks, the jobs government creates are the wrong kind of jobs. Those who understand business and budgets should focus on this issue, a "Government Centered Economy" is one that does not work.

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