Monday, August 10, 2009

There Is No Such Thing As "Government" Spending

There is no such thing as government spending. Period.

The government is not a private citizen that creates wealth that it subsequently uses for its own investment or consumption. The government does not "earn" money.

The government is simply a conduit through which we make collective decisions.

Government is, in essence, a private club with broad membership. It makes regular assessments (taxes) to fund what we require of it. However, unlike most clubs, it does not assess members evenly or based simply on usage, it actually charges successful members (from a monetary success standpoint) a greater assessment than less successful members. It charges an uneven rate for its membership.

We make the point about the non-existence of government spending because we believe it is vital to understanding what "government spending" actually is. Government spending is simply the act of taking money from certain citizens to use for some purpose that, presumably, those citizens would not make via the sum of their individual collective decisions. It serves as an override on individual liberties in the name of the greater good.

In order to grasp this important idea - that the government has no wealth to spend that it does not first take (or prepare to take via borrowings) from its citizens - we need to recognize that this is a limitation on freedom; that man should not be allowed to retain the fruits of his labor or to use them as he sees fit.

Warren Buffett wrote that value investing is like an inoculation: it either quickly takes or it never does; once explained people either quickly grasp the concept or they never do. The concept of government spending that we are talking about is similarly an inoculation: you either quickly understand or you don't that if you ask your government to spend on something, you are asking the government to take money and liberty from your fellow citizens and redirect it toward your purposes and away from theirs.

The majority of people either do not understand this or willfully ignore it...and yet it is so fundamental to our lives.

TILB was skimming Facebook the other day and noticed that a friend from college wrote, after being frustrated with her inability to get private health insurance at a price she appreciated, "bring on the Obama health care plan." Her view was that the government should spend "its" money on her health care insurance rather than her spending her own money. If instead we worded her desire as, "I would like to force my neighbor to pay for my health care plan because I don't like having to pay for it myself," we would quickly extrapolate the implication that her actual request is for the few to pay for the needs of the many. Clearly her request is not that the burden or assessment should be made equally, otherwise she would reap no benefit. Rather, she implicitly believes it should be an unequal system. She obviously does not believe she should pay for other folks' health care; she doesn't even think she should have to pay for most of her own! Instead she wants to go up the pyramid and take resources from the few and shower them on the many.

Yet I honestly doubt she recognizes that is the essence of her request.

We cannot ask the government to spend in a vacuum. All we can do is ask the government to confiscate wealth from our neighbor in order to sprinkle our neighbor's former wealth onto others or ourselves. When thought of this way, the insidiousness of "government spending" comes quickly to light. It seems easy to ask the faceless, bottomless pocket of government for more handouts. It is quite another thing to go next door and shakedown our neighbor to their face.

Sadly, that is exactly what a request for government spending is: an impersonal way of requisitioning our neighbor's wealth.

TILB stands against this theft of liberties other than for limited constitutional purposes: national defense, protecting personal liberties, prosecuting cheats, and contract enforcement. All else falls outside the duties of government. If not explicitly limited in this way, the incremental theft of freedom becomes too easy to give into and the desire too great to resist.

After writing the above paragraph, TILB went searching for a good quote on the matter. We came across the below from Congressman Ron Paul, which we will leave you with for today:
"In a truly free nation, the government acts only as a referee by protecting property rights, enforcing contracts, prohibiting force and fraud, and providing national defense. Such was the system [envisioned] by the Founding Fathers, who strictly limited regulatory and tax powers in the Constitution. They were tired of having their business affairs managed by the Crown, so they created a servant government that would allow freedom and capitalism to flourish.

"Today’s political rhetoric demonstrates that the servant has become the master. Most politicians, and too many Americans, have accepted the premise that government should plan our lives and control the economy. This subservient mindset encourages political pandering, as candidates strive to convince voters of their superior plans to take care of all of us. For a nation founded upon rugged individualism and self-reliance, the modern political landscape represents a wake-up call. Unless and until Americans begin to reclaim the mentality that made us great, we are destined to slide further into an economic and political malaise that cannot be solved by the grandiose plans of politicians."

PS: Keep your eyes peeled for a similar post in the future about corporate taxation, which is a misnomer. There are, of course, no corporations that are not ultimately owned by people. Corporate tax is simply another form of personal income tax.