On a recent trip to Rome we spent an entire afternoon walking around the Roman Colosseum and the Roman Forum. As we trekked around the 2,000-year-old ruins that once were the epicenter of western civilization, my economic mind began to wonder. Among the rubble lining famous roads like the Via Nova laid the remains of grand government buildings, temples, and a sports arena. The Forum also served as a parade ground where military units marched in victory celebrations. It then dawned on me that the sights we marveled at and snapped family pictures in front of represented government spending.
I thought about the amount of labor, materials, and tools expended to build the wishes of government. And how did the average Roman citizen benefit from these massive public works projects? I imagined an ancient Keynesius etching a formula like C+I+G+X=Y in stone showing the increase in economic growth in Roman coinage terms resulting from the construction of the Atrium Vestae.
Flash forward to the present, when economists, financial pundits, and central bankers fret over sequestration and austerity. After all, according to the Inscriptions of Keynesius, decreases in government spending lead to less economic growth. Lost in all the formulas and theory are two questions: what is economic growth and why is it important?
Contemporary mainstream economists would say economic growth is when GDP increases, which promotes job creation. In contrast, the classical/Austrian argument begins by noting that the purpose of any economic activity is to satisfy human wants. Society experiences economic growth when an increasing number of wants are satisfied. This occurs when the factors of production, land, labor, and capital (not money) become more efficient, and thus, lowering the opportunity costs for producing goods and services. Resources are then freed up to satisfy additional wants.
In class, I use the example of digging out a backyard swimming pool by hand. I ask the students how many people would be required to finish the hole in a day. I then introduce shovels into the scenario and repeat the question. Finally, I bring a backhoe into the picture along with the question of what we do with the excess labor and shovels. The answer becomes obvious to an individual sitting in an economics principles course; they make other goods. The same amount of resources can now satisfy more wants.
The problem with the modern terminology for economic growth is that it fails to take into account that every percentage increase of government spending requires hordes of bureaucrats sitting at a desk behind a keyboard inside a building constructed on a parcel of land, and that all this land, labor, and capital could have otherwise been used to satisfy consumer wants.
According to the Census Bureau, the federal government employed 2.8 million individuals in 2011. Another 19.2 million people worked for state and local governments. And what do these 22 million produce? Nothing but stacks of forms and regulations governing almost every aspect of our lives. A quick trip to your local government building will verify this fact.
An additional 1.4 million wake up in the morning donning one of the uniforms associated with the US military. People in the armed forces not only produce zero for human consumption, they actually destroy the land, labor, and capital necessary for the creation of goods and services that help satisfy human wants.
Furthermore, the productive sector must hire legions of workers to fill out paperwork that the non-producing bureaucrats require businesses to answer. Firms have entire floors of people that do nothing all day but reply to the demands of non-producing paper-pushers sitting in government buildings.
The American Action Forum estimates that businesses waste 87 million man-hours per year complying with regulations. Consider that Ford workers can assemble an automobile in around 33 man-hours, and that it takes approximately 3 man-hours to grow 100 bushels of corn. In terms of labor alone, government costs us 2.6 million cars or countless baskets of food, added on to the other products that could have been built if the labor sitting in government offices were employed in a productive capacity.
As for land, The Daily Paul estimates that the federal government alone owns 30 percent of the land in the United States upon which sit military bases, government buildings, national parks and areas where human activity is banned. Though estimates for state and local government property ownership are less reliable, one can easily imagine the percentage to be at least a third of that controlled by the federal government, which means government at every level controls at minimum 40 percent of the land mass in the country.
Just like the Roman gazing at the wonder of the Colosseum during the times of Emperor Vespasian, citizens in countries around the world stare in awe at government buildings, the residences of presidents and monarchs, and monuments commemorating some national event or paying homage to a political figure. The building material, wiring, flooring, and equipment used for construction could have been used to make a good to satisfy the wants of the average person. We post pictures to Facebook pages showing us standing before grandiose government buildings, but we never see the other side of the coin: someone doing without, because the resources that could have served his needs were embedded in a tribute to state arrogance.
Politicians and central bankers say the cure for our current economic conditions is vibrant economic growth. But how can you have economic growth when a good portion of our labor, land, and capital is tied to endeavors that produce nothing? The average Roman citizen 2,000 years ago would probably nod in agreement.
