I know I really should stop, shouldn’t I? I just can’t help picking this scab…
Even if you consider the courts, the police, the road network and all the other infrastructure, non of these create wealth. At least, not for the Government or the public sector.
It’s the private sector that generates the wealth. And these lovely things? They’re all paid for by.. yep… the private sector. ;)
That’s Charlotte Gore on the inability of the state to generate wealth commenting on my last piece. The Government, by its very nature, has no means of creating wealth itself, she writes in a blog which inspired my original blog last week.
That the state cannot produce wealth is her proposition, and it is completely unsubstantiated in anything which she has ever written so far. Personally, I am willing to go further and say that she will never substantiate it, because it is not true.
I have some propositions with which to test her, which will hopefully bring Charlotte Gore into the reality based community, should she wish to join.
Thomas Byrne offers me the first proposition. This concerns the courts and the police, the night-watchman functions of the state.
Now now, what about those who -do- claim that those can be provided by the private sector.
And you know what he’s right! There are people who suggest even the most basic functions of the state should be privatised. They should be left to rational individuals to organise on their own.
This must sounds like an attractive proposition to Charlotte Gore: Libertarian. Now I assume she is with the 99%+ of the population which are dubious that this would ever actually work, but lets assume for the moment that this set up does work.
Why would a privatised firm want to run these services if they created no wealth and added no value? Why would anyone voluntarily purchase their services if they offered no goods or service of value in return?
If these services were provided by the private sector (because there is no public sector) would these activities add value? If yes, then why do they not do so when provided by the state?
My second proposition is a little more conventional: a Pigou Tax.
Say there is an activity, X (mixing chemicals A, B and C to produce chemical D for which there is a demand), which has the unpleasant side effect of Y which produces £Z of damage.
The state can tax Y to the value of £Z and distribute this to the population evenly as a rebate on the damage done by activity X.
Before this tax was applied X only cost A + B + C to produce and the cost of Y was imposed on everyone, not just those that wanted that produced by activity X. After the tax the cost of damage Y (£Z) is included in the price of X.
Everyone still suffers the damage but are now compensated for it, neutering the effect. Those that want the product of activity X pay for the process and the damage, the true cost of production.
This improves allocative efficiency and eliminates the subsidy which the whole population were providing to those doing X. By improving efficiency this creates wealth by moving resources to where they should.
Is this the state creating wealth? If not why not? Allocating scarce resources in a more efficient manner is the definition of wealth creation and this is precisely what the state has done.
There are just two propositions for you to mull over Charlotte. I do hope you revise your beliefs slightly in the light of evidence and logic.
Of course if you do not you will be in good company, the economic illiterates in the Republican party, led by Michael Steel, have long argued along similar lines.
STEELE: And first off the government doesn’t create jobs. Let’s get this notion out of our heads that the government creates jobs. Not in the history of mankind has the government ever created a job.
Of course the state has produced jobs, the police are one example, as is the biggest employer in the UK. These may not represent the most efficient allocations of scarce resources in your opinion, but they are allocated relatively efficiently and represent both real jobs and real wealth production.
You see, I don’t want to pick on you, I’m just trying to get to the root of “why some of us are bothered by the deficit” as you tried to explain in your original post. Because at the moment it looks like at least one reason you are “bothered by the deficit” is because you don’t understand economics.