Contra President Biden, Government Spending Is Never ‘Paid For’

By John Tamny for RealClearMarkets

There are surely more ridiculous policy notions (about money in particular), but the one from President Biden about his $3.5 trillion economic plan being “paid for” is right up there. Nothing is “paid for” when it comes to government spending.

It’s all cost.

To see why, please ask yourself why Congress can spend trillions every year, but the political class in Honduras consumes $5 billion or so. The answer to this riddle isn’t challenging, but economists and politicians are plainly in the dark.

Honduras’s spending is a microscopic fraction of Congress’s precisely because Congress has arrogated to itself a portion of the production of the world’s most productive people. That would be the American people.

No offense to the Honduran people, but they’re not as productive as their northern neighbors. Government spending in Honduras is indicative of this truth.

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The above truth is inconvenient, or should be for U.S. politicians. It’s a reminder that their consumption of precious wealth doesn’t instigate economic growth; rather it’s a consequence of it. It’s loud evidence of the ferocious stupidity of a number routinely cited by politicians and economists: GDP.

GDP would go down – a lot – if government spending were slashed, which just goes to show how bankrupt the calculation is. Growth happens, or is expected to happen, and politicians spend its fruits. There’s no new growth to speak of from this political consumption. To say otherwise is to engage in double counting.

So, the Biden administration claims the trillions he would like spent are “paid for.” No, they’re not. The trillions spent are a cost. They’re an economic somnolent. Instead of trillions of precious wealth being directed to its perceived highest use in the marketplace, it will instead be allocated by people like Marco Rubio and Alexandria Ocasio-Cortez.

Are Rubio and AOC as skillful at investing as Warren Buffett and Peter Thiel? Please don’t answer. It would be a waste of words.

The simple truth is that government spending is a burdensome tax. And it’s felt right away as businesses and entrepreneurs get by with less so that politicians can spend more. And no, there’s no short-term “sugar high” as even some on the Austrian School right presume.

The burden of government consumption is immediate, and it saps growth immediately. To believe otherwise is to believe that unspent private wealth sits in coffee cans. Don’t worry, it gets sillier. And it mocks both sides. But for now, this write-up will stick with Biden.

Part of why Biden and his people believe their spending visions are “paid for” is because they plan tax increases on the average and well-to-do that will allegedly pay for their waste. It’s a nice try, but people are the drivers of all economic growth. Government merely consumes the fruits of their production.

Applied to Biden, tax increases that will penalize work and investment are billed as the revenue generators to “pay” for waste. No, economic growth pays for waste. Tax increases are a barrier to economic growth.

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To be clear, this doesn’t mean the economy won’t grow despite tax increases, but it does mean that the Biden administration will “pay” for its waste with funds extracted from an economic pie that would otherwise be larger.

None of what’s in the above paragraph should be construed as a call for tax cuts meant to maximize federal revenues. Instead, it’s a call for levels of taxation so low, so local (cities and states), or both that revenues into Treasury drop.

If economic growth pays for government waste, and it does, the goal should be to limit taxation of the growth as much as possible.

Which brings us to the other side of the debate. The alleged pro-growth, limited government side of the economic discussion. These are the “deficit hawks.” They wrap their calls for “limited government” inside their rants about “deficits.”

Somewhat like Biden, they too want all government spending “paid for.” No borrowing. The thinking here is similarly dense.

To see why, understand that what’s “paid for” now without borrowing almost as a rule takes on a life of its own. Medicaid began as a $3 billion program, but it will pass $1 trillion annually in a few years. Translated for those who need it, what’s “paid for” now generally doesn’t account for costs down the line. Government grows. Always.

It’s a long or short way of saying that ALL government spending is deficit spending. Government has no resources. Its only resource is yet again access to the fruits of actual economic growth. In that case, to focus on how government gets the money it wastes (whether all taxed, or part taxed and part borrowed) is to wholly miss the point.

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The tax is government spending, not the way the funds are accessed. What’s paid for with a budget in balance or with borrowed money is a distinction without a difference. Programs hatched by government invariably grow and grow, only for the tax that is government spending to grow.

Please keep all of this in mind as President Biden says his spending proposals are paid for. No, that’s not serious. At the same time, it’s similarly not serious for limited government types to pretend that government spending is less problematic solely because the money isn’t borrowed.

Syndicated with permission from RealClearWire.

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