Government Spending Does Not Grow The Economy
Federal spending doesn’t come from the tooth fairy, it comes from taxes that you and I pay.
“Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other.” – Ludwig Von Mises
Last week, Governor Gianforte announced plans for Montana to be the first state to opt-out of the expanded unemployment benefit programs enacted during COVID-19. Instead, Montana will launch a “Return-to-Work” program, which will provide bonuses to new hires and reinstate requirements that beneficiaries seek jobs.
The tax and spend crowd leapt at the chance to criticize the move, but their arguments relied on long-standing economic myths, like the assumption that government spending on things like expanded unemployment benefits stimulates the economy. In fact, the opposite is true.
Imagine a forest fire burns through one of our western Montana towns, destroying several homes and businesses. It’s likely that millions of dollars would be spent rebuilding from such a tragedy. Local supply stores would see an increase in sales and builders would have plenty of jobs. The money would continue to spread out in the economy.
Someone might say all the spending and jobs generated from the fire is great for the local economy. In reality, everyone is worse off.
When people spend money replacing destroyed houses, they forfeit new purchases, investments, and savings. And if the government spends tax dollars to fix the damage, they divert money from other essential services and will eventually have to make up the expenses with higher taxes.
In the case of expanded federal unemployment payments, instead of burning down houses, the government is robbing Peter to pay Paul not to work.
Federal spending doesn’t come from the tooth fairy, it comes from taxes that you and I pay. Stimulus spending will eventually pull wealth out of the private marketplace that could have otherwise been used productively.
I’m glad that Governor Gianforte understands that spending does not create prosperity. Real economic growth happens when we create new products and services that we each value.
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- An excellent write-up in the Flathead Beacon makes the case for a cautious economic outlook in light of excessive government spending:
“Once the Biden Bucks are removed from the economy and the foreclosure and eviction moratoriums rescind, the economic reality that few have prepared for will hit. The federal government is broke, operating on deficit spending. Its tools to stave off inflation are limited. Despite these indicators, many believe the pillars of our economy are unwavering. I hope they are right. But I’m stocking up on the bologna and pancake mix just in case.”
More on Unemployment
- Last week the National Federation of Independent Businesses released a survey showing a record-breaking 44 percent of small business owners reported having jobs they couldn’t fill in April. Respondents cited supplemental unemployment benefits among the factors driving the tight labor market.
This simply underscores the virtues of Montana’s action to opt-out of extra unemployment payments which will increase incentives to return to work. The governor made the right move.
- A new study ranks Montana among states placing the highest regulatory burdens on entrepreneurs.
We’ve said it here before – excessive red tape is holding Montana’s economy back. As Governor Gianforte’s Red Tape Relief Task Force gets off the ground this summer, we look forward to having a state government committed to reducing unnecessary and burdensome regulations.