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While some readers of this column are perhaps already familiar with this historical anecdote, it’s worth repeating every now and then that as recently as the year 2000, the state of Ohio had more paved roads than all of Russia combined. Please think about that for a minute. Ohio, a seemingly middle-of-the-economic-pack U.S. state, not too long ago had more paved roads than a country that is eleven time zones large.
So how can the Buckeye State claim so much in the way of drivable terrain? Why is there so much throughout the U.S.? The answer is that Americans – for good and bad – produce so much taxable wealth. Government doesn’t build roads as much as it’s able to pay private actors to build roads thanks to the endless amounts of money that flows into government coffers. Road construction doesn’t drive (excuse the pun) economic growth in the United States; rather it’s an effect of it. Haiti, Peru and Democratic Republic of Congo don’t have fewer roads because their politicians are thrifty; they do because there’s insufficient growth in the private economy of each country such that their politicians have very little to spend.
Which brings us to a recent New York Times’ piece which speculated on the economic impact of the federal government’s partial shutdown. Alan Rappeport and Binyamin Appelbaum observed that the shutdown is “unlikely to make much of an immediate dent in the growth of the United States economy.” Later on they tried to tie a number to their assertion with their mention of a Standard & Poor’s estimate that the partial shutdown “could shave $1.2 billion off gross domestic product each week,” only for them to 'reassure' readers the latter only represents “a very small fraction of the nation’s economic output.” Rappeport and Appelbaum state the obvious, but unsurprisingly miss the point.
They forget that the federal government has trillions to spend every year precisely because the American people produce many more trillions worth of wealth. The federal government is big in the United States solely because the U.S. economy is massive. Rappeport and Appelbaum comically confuse causation here.
To believe their reporting, the U.S. economy is made bigger by government spending! That’s impossible. The federal government once again only has trillions to spend as a consequence of all the wealth already produced in the private sector. That’s why governments around the world spend much less than wasteful American politicians do. Applied to Russia and its substantial lack of roads relative to the U.S., it’s not that the pols there are stingy with the money of their people. In truth, the Russian people produce wealth at a small fraction of the rate at which the American people do.
Rappeport and Appelbaum also forget that economic growth, despite what they’ve been led to believe, is not an effect of consumption. Goodness, we all have endless consumptive desires. That’s just evidence that we’re human. What the Times’ scribes can’t seem to wrap their heads around is why Americans are able to consume to much more than other people. Rest assured they’re not able to because politicians at all levels of government are so eager to reach into their pockets. Taxation logically limits our consumption.
Back to some semblance of reality, Americans are able to consume abundantly because they produce wealth in abundant fashion. Consumption is an effect of production, and the more investment there is, the more production there is. If anyone doubts this, just stop and consider the relative productivity of a farmer who only has a shovel versus one with a tractor. Or a factory worker aided by robots versus one manually handling all aspects of production. Or a technologist working with dial-up internet speed versus 4 or 5G. The simple truth is that the more wealth invested in us, the quicker our productivity rises, and with the rising productivity, the greater our ability to produce in order to consume.
It’s all a reminder of how much bigger (and we’re talking exponentially bigger) the U.S. economy would be if government at all levels taxed and spent quite a bit less. Oh my, would we be prosperous. And for those who say we wouldn’t be because there would be no roads, let’s be serious. Capitalism is all about expanding ways for the productive to meet the needs of other productive people. For individuals to suggest we’d still be riding in horse-drawn carriages from Los Angeles to San Francisco absent government is for certain people to reveal a level of unseriousness that is awe inspiring.
For now, though, it should be said that Rappeport and Appelbaum are engaging in double counting of the most dishonest kind when they claim even small economic growth decreases as a result of the partial shutdown. They’re being silly. Economic growth is once again what enables government. And if it were smaller, the private investment without which there is no growth would be quite a bit more sizable.
So while it’s a reach to suggest President Trump understands what Rappeport and Appelbaum plainly do not, how dreamy if he did only to ride out the shutdown at least through 2020. This way there’s thankfully no wall, and no growth in government. Congress and the White House lose, but those of us not in government win. As for the estimated 500,000 federal employees who will have less thanks to a partial shutdown, welcome to the world of the private sector American worker 365 days/year thanks to government that grows and grows on the backs of those not in its employ.