The federal government is the world’s largest buyer, which many economists view as economically stimulating. However, this belief comes from a misunderstanding within the profession. Government spending comes from taxpayers, meaning that when the government spends, individuals have less money to spend or save. Investment, not government consumption, is the key to economic growth.
Government spending distorts the market by not spending money as carefully as individuals would. An example of this distortion is the continued purchase of Blackberry phones by federal entities long after the market had moved on to other smartphone options. This raises the question of whether Blackberry could have remained competitive if government spending had not given it false signals about the market’s demand.
The debate over the future of U.S. energy is passionate, with some believing that oil is essential for the global economy to function, while others see it as an existential threat to the planet. The answer to this debate should be left to the marketplace, as government actions are anti-market and can transmit false signals about what should be done in the market. States like Texas are trying to use government power to push businesses into supporting fossil fuel extraction, which could negatively impact economic growth.
Government heft is not derived from the marketplace, but from taxpayers’ income. When governments act as if the money they are spending is their own, they can transmit false signals that hinder growth. It is important for lawmakers to consider the impact of their actions on the economy, as government decisions can have a significant effect on the people and businesses within their states.
It is crucial for lawmakers to consider the long-term consequences of their actions on the economy, as government decisions can have a lasting impact on the marketplace. By understanding the distortions caused by government spending and the importance of allowing the market to dictate economic decisions, policymakers can make more informed choices that promote growth and prosperity for all.
