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Statist Economic Thinking, False and Fallacious

by

To understand why the United States and much of the rest of the world are in a world of hurt economically, all you have to do is take a look at the economic reasoning in this New York Times article by Shaila Dewan and Motoko Rich: “Public Workers Face New Rash of Layoffs, Hurting Recovery.” The title of the article pretty much sums up their thinking. I think it’s safe to say that their economic reasoning pretty much reflects the viewpoint of economists and business writers in the mainstream (i.e., statist) press.

The authors write: “…. the public sector has shrunk by 760,000 jobs … creating the single biggest drag on the recovery in many areas.”

So, in their minds, when the government sector is laying off people, that hurts economic conditions. Conversely, when governments are hiring people, that means jobs and economic prosperity.

Nothing could be more fallacious and more false. And it’s that type of fallacious and false economic reasoning — reasoning that is inculcated in public schools and state-supported colleges and universities across the land — that is at the root of the economic woes all across the world.

In the minds of the statists, public-sector jobs are no different from private-sector jobs. They view the government as just another player in an economy. In their minds, there is IBM, Apple, General Motors, Nike, the federal government, state and local governments, and millions of other businesses, all of which are creating jobs for people and contributing to the overall prosperity of the nation.

Thus, when the government creates jobs, for the statist that is no different than IBM’s or Apple’s creation of jobs. In the statist mind, it’s all the same thing.

But it’s not the same thing. Public (i.e., government) sector jobs are totally different from private sector jobs.

It’s the private sector that is the wealth-producing sector.

The government sector, on the other hand, is totally different. It doesn’t produce any wealth at all. Instead, it lives off the wealth that is produced by the private sector.

To put the situation more bluntly, the government sector operates much like a parasite does. The parasite, say a tick, attaches itself onto a host, say a cow, and survives and prospers by sucking the blood out of the cow. If the cow dies, the parasite dies.

That’s the way it is with government employees. Again, they don’t produce any wealth whatsoever. Their salaries come from the wealth that is being produced in the private sector.

Thus, it’s obvious that government-sector jobs are totally different from private-sector jobs. The more government-sector jobs there are, the more wealth that must be extracted from the private sector to fund them.

It’s the private sector in a society that is responsible for increasing standards of living. As wealth is produced, some of it inevitably goes into savings, which businesses use to acquire better tools, equipment, and facilities, which in turn make workers more productive. As productivity increases, revenues and profits to the firm increase. Increases in revenues and profits lead to higher wages for workers, as prosperous and expanding firms increasingly compete for the laborers in the work force.

Thus, contrary to what Marxists have long claimed about conflict between employers and workers, there is actually a harmony of interests in a free-market environment. Owners, laborers, consumers, and investors all have the same interest in seeing prosperous companies and a prosperous economy.

Obviously then, the more wealth the government confiscates from the private sector, the worse off everyone is. Less income (from more taxation) means less savings, which means less capital, which means less productivity, which means less wage increases, which means lower standards of living.

Thus, it becomes obvious that as the public sector (both civilian and military) gets larger and larger with more and more employees (or welfare recipients or military invasions), the greater the confiscation of wealth from the private sector.

Now, that’s not to say that a public-sector employee’s work might not be important to the functioning of a free market. For example, a policeman charged with the task of apprehending and bringing to justice thieves and robbers obviously performs an important function in a free market. But the fact still remains: his tax-funded salary nonetheless constitutes a drain on the private sector.

Statism has brought nothing but misery, poverty, and discord, not only here in the United States but also all over the world. If Americans and others want to restore a free, peaceful, prosperous, harmonious society to their lands, they must reject statism and the false and fallacious thinking that underlies it.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.