Thursday, September 30, 2010

Who we are governed by

We are governed by incompetents. They are so incompetent they do not even know what competency looks like.

Suppose the economy grows at 3%. Then just by controlling where that 3% is spent, the government can control the direction of the growth of the economy.

Of course, that is just the first approximation. The economy also undergoes change, which does not show up as growth, but investment compensating for depreciation and other asset consumption. This percentage must also be controlled. Further, what is destroyed must also be controlled. It can tax what it wants to destroy, and it can then spend the money to direct investment. This will cause the money to be spent in the direction the government deems desirable. The economy will then grow in the direction the government desires.

And it does this already. A government which is 20% GDP can’t help but direct the economy. That it does so inefficiently, and without much direction, merely means both it doesn’t understand what it is doing, and that some, or a lot, of the ‘growth’ is directed to waste.

What we are talking about is Gross private domestic investment, nonresidential. (Although the government could control the residential as well. It can tax larger mortgages, a graduated mortgage tax. It can tax the building of some houses, and subsidize the building of others.) Nonresidential gross private investment works out to be just under 10 percent of GDP. So by directing that 10 percent of the economy, the government can make it grow any way it desired, and provide any services desired. Well, any way desired that was sustainable. It could do this simply by subsidizing desired services, and taxing the crap out of any other investment.

Of course, it wouldn’t have to be so crude. It could be more measured, taxing according to degree of undesirability, subsidizing according to degree of desirability. If they wanted more health care, they would subsidize its production. Pay for more doctors, more nurses, more hospitals. If they wanted less concentration of wealth, they could tax it. More windmills, subsidize; fewer automobiles, tax. Less financial, tax. More manufacturing, subsudize.

Think this is heavy handed? Look at the ham handed government we have now. Look at the effects of its policy. It is 20% of the GDP, controls more, and what direction do we get from it? Instead of planning, we have special interests, pulling government investment this way and that. Financial has increased to 6%, with more profits than manufacturing. Manufacturing gets little support, and has been in decline for decades. Just 1% of our GDP goes to industrial equipment. That’s the stuff that goes into factories. In agriculture, unsustainable factory farms are subsidized, while family farmers are not. Health care has increased to 17% GDP. (This is not in contradiction to what was said above. This is demand (subsidized) driven inflation as a result of inadequate supply (taxed). The government should do the opposite. Subsidize production, and tax demand.) Infrastructure deteriorates, at the same time demand for it is subsidized. Unemployment is subsidized, employment is taxed.

All this and more is the result of government policy, of its spending, taxation and subsidy, Either that, or the government, spending 20% of GDP, and controlling more, has no effect on the economy. That is, it is essentially impotent. Of course, the government can still be essentially impotent, spending 20% of GDP, if it is locked into its commitments, the captive of special interests, and cannot change the way it spends its money. Like the government we have now.

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