Keynesians believe that more government spending leads to more economic growth, but in addition to crowding out productive enterprises, government spending necessitates the transfer of wealth from the productive class to the government class.
Frank Shostak writes in Mises Daily:
Some economists such as Nobel Laureate Paul Krugman hold that during an economic slump it is the duty of the government to run large budget deficits in order to keep the economy going. On this score — given that from 2011 to 2014 the rate of growth of real gross domestic product (GDP) hovered at around 2 percent — many experts are of the view that the budget deficit, which stood at $483 billion in 2014, wasn’t large enough…
Observe that a government is not a wealth generating entity — the more it spends the more resources it has to take from wealth generators. This in turn undermines the wealth generating process of the economy. This means that the effective level of tax is the size of the government and nothing else. For instance, if the government plans to spend $3 trillion and funds these outlays by means of $2 trillion in taxes there is going to be a shortfall, labeled as a deficit, of $1 trillion. Since government outlays have to be funded it means that in addition to taxes the government has to secure some other means of funding, such as borrowing or printing money, or new forms of taxes.
Read the full article at Mises.org.
6:19 pm on January 6, 2015
