Interesting question this. Most economists agree that government spending within a nation's borders automatically boosts GDP, as GDP is simply the aggregate of spending. But apparently some people think they know better. Let's hear their arguments.
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that all depends how governments spend that money doesn't it...Interesting question this. Most economists agree that government spending within a nation's borders automatically boosts GDP, as GDP is simply the aggregate of spending. But apparently some people think they know better. Let's hear their arguments.
So, do you think taking water out of the deep end of the pool and throwing it in the shallow end might make the overall level of water rise?Interesting question this. Most economists agree that government spending within a nation's borders automatically boosts GDP, as GDP is simply the aggregate of spending. But apparently some people think they know better. Let's hear their arguments.
We could start by correcting the errors in your premise.
Underwhelming, yes, pretty no.Eh why don't you go first? Pretty underwhelming OP.
From the second:The total cumulative outperformance of the US economy relative to the Eurozone does not change if you take government consumption out. This is a somewhat surprising result, in that one might have expected the gap to widen. But the spending binge by the US government since 1997 has led it to pull even with the Eurozone in this regard. However, the crucial difference is that the US economy has been able to grow in its other GDP sectors too, whereas all the Eurozone growth since 1991 has been due to government consumption growth. That's not a sustainable or healthy position to be, witness the plight of Japan. Moreover, the share of GDP coming out of government consumption in the US has been declining, although the recession has nudged it back up. In th Eurozone, the share has remained constant.
From the third:Most of the time “austerity” is a misleading word and more precise concepts — readily intelligible I might add — are available. There really are some times when we should relabel austerity as “mostly tax increases,” but many people are reluctant to do so.
This paper examined the causal relationship between government spending and government revenue in the case of Botswana. Following the methodology used by Darrat (1998), in addition to the bivariate model, a multivariate model is specified in this paper. In the multivariate model, two control variables; GDP and interest rates (bank rate) are also incorporated to try and avoid the problem of omission of variables The two models however give very similar results showing that there is a unidirectional causal link running from revenue to spending in the case of Botswana. This supports the tax-and-spend hypothesis of Friedman and Buchanan-Wagner. The relationship is also shown to be negative and therefore like Buchanan and Wagner (1978) suggested; government budget deficit can be corrected by raising taxes.
thinking government spending helps the economy is like a struggling retailer borrowing money to buy stock out of his shop and then being delighted that sales are up
Government spending on infrastructure, and not-for-profit services such as education and healthcare are fundamental to the success of capitalism.Government spending on social transfers or government spending on the interest created by borrowing in the past to spend on social transfers and other things are not included in GDP. All this does is move money around and though there will be some equity benefits the overall system is negative for GDP.
Government spending on wages, infrastructure and goods and services are included in GDP. The problem here is not that these items don't add to GDP (they do), the problem is the price the government pays for them. Wages can sometimes be used as a form of transfer, infrastructure projects with no net benefit are sometimes undertaken and the procurement and tendering processes are sometimes the subject of inflated prices and questionable allocations.
Not all government spending is bad, but just because some of it is good does not mean that more is better.
The internet and the World Wide Web, both of which have enabled trillions in private business activity, are both largely creations of government.Government spending on infrastructure, and not-for-profit services such as education and healthcare are fundamental to the success of capitalism.
Singapore Economy: Facts, Data, & Analysis on Economic FreedomWhile the private sector has been the source of Singapores economic success, the government maintains a proactive role in guiding economic development. State ownership and involvement in key sectors remains substantial. A government statutory entity, the Central Provident Fund, administers public housing, health care, and various other programs, and public debt is over 90 percent of GDP.
http://www.nzasia.org.nz/downloads/NZJAS-June09/23_Shome_3.pdfA Background of State-Guided Entrepreneurship in Singapore
Lee Kuan Yew (hereafter Lee Senior), Singapores first prime minister (1965-1990) and currently minister mentor (2004-present) said, we did not have enough entrepreneurs, and those we had, lacked the capital or interest, so Government ministers undertook the task of starting new venture(s).
Lee Senior and his government, then, either did not believe that private entrepreneurs could be developed or relied on, or believed that state
bureaucrats were more trustworthy to drive the economy. Apparently, thereafter Lee Senior and his government proceeded on the path of state guided entrepreneurship. Interestingly, it has been convincingly argued that people can be motivated to undertake different tasks, and there is no reason why civil servants cannot be entrepreneurially innovative.
...Lee Seniors answer was the incorporation of a government holding company, Temasek Holdings that was tasked to oversee all state ownership and entrepreneurial activities.
Sim Kee Boon, formerly head of the civil service, and director of Temasek and several GLCs recalled, Two decisions were made: Invite
multinational corporations to enter our market and get the Government involved, to give confidence to the whole industrialization effort. There was no conscious decision which industries the Government would go intowe were even making pyjamas! The objective then was simply job creation. It was an eclectic and pragmatic policy. The governments move into business was initially intended as developmental where state interest in nvestments would lead to economic growth, principally job creation, but because of the faster rate required for industrialization and a lack of local entrepreneurs, the government was forced into business collaboration with foreign companies that went beyond mere developmental objectives.
Consequently, the governments business interests grew phenomenally; according to Sim, it accounted for some 60% of Gross Domestic Product (GDP) by 2000.
Really? How do pay people pay for food, cars, houses, holidays etc etc? Have those things become more or less expensive (relative to income)?Anybody who thinks that private enterprise would have provided free education to the bulk of the population, or free or heavily-subsidised healthcare, or brought electricity to rural Ireland, is a fantasist.
The internet and the World Wide Web, both of which have enabled trillions in private business activity, are both largely creations of government.
Given the scale of the profits being made from the internet, and the scale of the bailouts of banks and other businesses (including past bailouts), not to mention the benefits to business from government spending on the sectors you mention, I think it's certain that the overall effect of government spending has been positive for private business and the ability of capitalist enterprise to operate.
Anybody who thinks that private enterprise would have provided free education to the bulk of the population, or free or heavily-subsidised healthcare, or brought electricity to rural Ireland, is a fantasist.
People often mention Singapore as a model capitalist society. What they usually fail to mention is the degree of state involvement in business in Singapore:
Singapore Economy: Facts, Data, & Analysis on Economic Freedom