Do not think about, write about or deal with human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.
Wherein we see that giving governments money makes everyone but government employees much poorer.
Balance budgets and eat more bacon
Eating bacon is better for the planet than eating lettuce and balancing government budgets by cutting spending is better for economies than raising taxes.
It’s been a good week for academic studies.
On the economic front, Vancouver’s Fraser Institute this week awarded its prestigious Addington Prize to a Harvard University professor, Alberto Alesina, and two colleagues from Italy who studies for 30 years of budget balancing attempts in 17 industrialized nations, including Canada.
The trio established that budget balancing based on spending cuts is “much less costly” for economies “than tax-based ones.” And balancing budgets based on permanent spending reductions “have especially low output costs.”
In other words, spending cuts are better than tax increases, and permanent cuts are best of all. Permanent cuts do the least economic harm in the long run.
“The difference between tax-based and spending-based adjustments appears not to be explained by accompanying policies,” according to Alesina. It is not necessarily about which is better, private or public health care, for instance. Rather, “it is mainly due to the different response of business confidence and private investment.”
Businesses expand when governments shrink. And private investors, including small-scale investors such as ordinary wage earners buying mutual funds or RSPs, pump more money into the economy when they have more confidence of earning a decent return on their money.
And that private investment has a much, much greater impact on economic growth than all the money governments spend on infrastructure investment, “green” energy research, home renovation credits, economic diversity or income-equality transfers.
That’s because government spends money for political reasons while private enterprise spends money to make money.
Governments trying to tax their way out of deficit – the way Canada’s new Liberal government and most of the country’s provincial governments propose to do – has the opposite effect according to the Harvard study.
The prospect of higher taxes discourages investment and reduces consumer confidence (and thus consumer spending). Businesses expand less, investors invest less and consumers spend less, all three of which are drags on an economy.
Then there’s the little matter of government waste.
Every five dollars invested by a private company generates somewhere between seven dollars and $10 of economic activity.
On the other hand, for every five dollars spent by government, the cost of administration is at least a dollar. And the economic impact of the four dollars that finally reach their intended projects is at best five dollars.
So when you consider every dollar taxed out of private hands versus those left in private pockets, the reduced impact of government spending is between three dollars and five dollars less economic growth for every five dollars taxed away.
This is opposite to the nonsense taught by university economists that government spending produces more value than private spending.
Unfortunately in Canada, higher taxes and greater spending are the direction we’re headed. From the NDP in Alberta to the Libs in Ottawa, our governments are once again convinced that politicians are better at making the economy stronger (and fairer) than business experts.
Which brings us to bacon.
According to Paul Fischbeck, a professor of social and decision sciences at Carnegie Mellon University in Pittsburgh, “eating lettuce is over three times worse in greenhouse gas emissions than eating bacon.”
Again, no Global Warming, no greenhouse gases.
It’s a little more complicated than that. Fischbeck and two other researchers compared what it costs to raise, transport and cook 1,000 calories of various foods. They found that going vegan in a northern climate produces the most greenhouse gas emissions, even though not all meats are better for the environment than all vegetables.
The point of both studies is that many of the economic, social, security, cultural and political assumptions made by our current crop of “progressive” leaders are wrong. Just because they believe the actions they favour are more moral or just or enlightened doesn’t mean they are.
But get ready for at least a decade of progressive sentimentality and symbolism driving public policy.
Government theories about how important and useful they are produce a lower standard of living. Write it down.
Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.”
Cui Bono–Cherchez les Contingencies