Government Spending and Wasting Resources

I consider virtually all government spending to be a waste of resources.  I suppose it could be argued that government spending on courts, police activity against crime, and a few other things are not wasteful because they may actually be protecting property and enforcing contracts.  So without arguing these points, then radical libertarians should be able to at least agree that 99% or more of government spending is wasteful, since most of what the government does (at all levels) is beyond property protection and contract enforcement.

One point that is important though is that not all government spending is unproductive.  It is just that government spending is less productive than it would have been had it been left in the hands of the people who earned it.  Governments can spend money to build bridges, manufacture electric cars, maintain parks, and an endless list of other things.  Of course, governments can also destroy resources with spending, if it is on something like war.  And government spending can create dependency and wreak much havoc in that sense.

But even if government limited its spending to producing goods and services (and not destroying them), it would still not be an efficient use of capital.  When the government spends money, it is not allowing the market to determine what should be produced and sold.  It is not that entrepreneurs don’t make mistakes.  It is just that entrepreneurs are sent market signals such as prices and profits and losses.  The entrepreneur must quickly adjust or else risk losing his money and going out of business.  Governments do not have to adjust as there are no signals telling if something is a good idea, and governments can keep taking more money through the threat of force to fund projects.

So again, it is not that all government spending is completely unproductive.  It is just that government spending misallocates resources.  The government could spend money to make an iPod for every single American and have them distributed.  It is not completely wasteful.  I’m sure most Americans would probably use their new government iPod.  But the problem is that many people would have preferred to keep their money and spend it on their next top priority.  That priority could have been paying down debt, saving more money, buying clothing, buying food, or millions of other things.

The best case scenario for an individual in the above example is that he or she would have gone out and bought an iPod with their money had the government not done it for them.  I suppose it would have been a wash in this case (assuming no government administration fees).  So perhaps a few million Americans would have been satisfied with their government iPod, while the rest would have preferred to use their money for something else.

Unfortunately, if the government used the Fed to create new money, or even if the government used general tax money (instead of having a special iPod tax), then many millions of Americans would be quite happy to receive their “free” iPod.  (I should note that I would rather the government use my tax money to make iPods than to “educate” children, fight wars, or arrest people for drug use.)

In conclusion, virtually all government spending is a misallocation of resources.  This makes us poorer and lowers our standard of living.  It is not that all government spending is completely unproductive.  It is just unproductive in comparison to leaving it to the free market.  A free market allocates resources according to the needs and wants of the millions of consumers who are using their own money to buy goods and services.