Prairie Centre Policy Institute
Weekly Commentary
WHERE DO WE GO FROM HERE
November 12, 2003
Subject: Ten Elements of Clear Thinking About
Economic Progress and the Role of Government
In their book “What Everyone Should Know About Economics and Prosperity”, economists James Gwartney and Richard Stroup introduce the reader to basic economic principles that reflect simple common sense. In the aftermath of the Saskatchewan provincial election, I thought it appropriate to review their ten elements of clear thinking about the government’s role in the economy.
1. The role of government is to protect the rights of individuals (life, liberty, and property) and supply goods and services that cannot be provided through markets.
2. Government is not a corrective device. While people tend to think that government can solve all their problems, it can’t. Government is merely a method of social organization through which individuals collectively make choices and carry out activities. The fact is, governments do not always make decisions that are in the public’s best interest.
3. The real cost of government is: a) the decline in private sector output that results from the government’s use of resources; b) the cost of collecting taxes; and, c) the unrealized gains from exchanges squeezed out by government. The cost of any product or service is what we have to give up in order to produce it. Government is no exception.
4. Unless restrained, special interest groups will use the democratic political process to fleece taxpayers. Unfortunately, democratically elected officials often gain support by favouring special interest groups at the expense of the general public.
5. Unless restrained, legislators will run budget deficits that are often harmful to the economy. Debt is a politically attractive alternative to taxation because it pushes the cost of government on to future generations.
6. When government attempts to help some people at the expense of others, resources will move away from production and toward plunder and economic progress will be retarded. We prosper by producing a good or service and exchanging it for income. But some people can also prosper by “plundering” what others have produced. This not only fails to generate additional income – one person’s gain is another person’s loss – but it also consumes resources and thereby, reduces the wealth of the society.
7. The cost of government income transfers will be far greater than the net gain to the intended beneficiaries. When the war on poverty was declared in the mid-1960s, it was widely believed that poverty could be eliminated if people would share a little more of their income with the less fortunate members of society. They did, and forty years later we still have poverty, hunger and homelessness.
8. Government central planning of an economy merely substitutes politics for markets, which will waste resources and retard economic progress. There is every reason to believe that investors risking their own money will make better investment choices than central planners playing with the money of taxpayers.
9. Competition is just as important in government as in markets. Competition among government units and between government enterprises and private organizations will help assure that government is a servant of the people. Competition in the private sector provides consumers with protection against high prices, shoddy merchandise, poor service, and/or rude behavior. Unfortunately, the importance of competition is not so widely recognized in the public sector.
10. Constitutional rules that bring the political process and sound economics into harmony will promote economic progress. Both history and economic theory indicate that democratic elections alone cannot establish an environment conducive to economic progress.
James D. Gwartney is professor of economics and policy sciences at Florida State University. He is an expert on such economic issues as taxation, labor policy, and the economic analysis of government. Richard L. Stroup is professor of economics at Montana State University. He is an expert on privatization, the environment, and Superfund.
“Where Do We Go From Here” is a feature service of the Prairie Centre”
Weekly Commentary
WHERE DO WE GO FROM HERE
November 12, 2003
Subject: Ten Elements of Clear Thinking About
Economic Progress and the Role of Government
In their book “What Everyone Should Know About Economics and Prosperity”, economists James Gwartney and Richard Stroup introduce the reader to basic economic principles that reflect simple common sense. In the aftermath of the Saskatchewan provincial election, I thought it appropriate to review their ten elements of clear thinking about the government’s role in the economy.
1. The role of government is to protect the rights of individuals (life, liberty, and property) and supply goods and services that cannot be provided through markets.
2. Government is not a corrective device. While people tend to think that government can solve all their problems, it can’t. Government is merely a method of social organization through which individuals collectively make choices and carry out activities. The fact is, governments do not always make decisions that are in the public’s best interest.
3. The real cost of government is: a) the decline in private sector output that results from the government’s use of resources; b) the cost of collecting taxes; and, c) the unrealized gains from exchanges squeezed out by government. The cost of any product or service is what we have to give up in order to produce it. Government is no exception.
4. Unless restrained, special interest groups will use the democratic political process to fleece taxpayers. Unfortunately, democratically elected officials often gain support by favouring special interest groups at the expense of the general public.
5. Unless restrained, legislators will run budget deficits that are often harmful to the economy. Debt is a politically attractive alternative to taxation because it pushes the cost of government on to future generations.
6. When government attempts to help some people at the expense of others, resources will move away from production and toward plunder and economic progress will be retarded. We prosper by producing a good or service and exchanging it for income. But some people can also prosper by “plundering” what others have produced. This not only fails to generate additional income – one person’s gain is another person’s loss – but it also consumes resources and thereby, reduces the wealth of the society.
7. The cost of government income transfers will be far greater than the net gain to the intended beneficiaries. When the war on poverty was declared in the mid-1960s, it was widely believed that poverty could be eliminated if people would share a little more of their income with the less fortunate members of society. They did, and forty years later we still have poverty, hunger and homelessness.
8. Government central planning of an economy merely substitutes politics for markets, which will waste resources and retard economic progress. There is every reason to believe that investors risking their own money will make better investment choices than central planners playing with the money of taxpayers.
9. Competition is just as important in government as in markets. Competition among government units and between government enterprises and private organizations will help assure that government is a servant of the people. Competition in the private sector provides consumers with protection against high prices, shoddy merchandise, poor service, and/or rude behavior. Unfortunately, the importance of competition is not so widely recognized in the public sector.
10. Constitutional rules that bring the political process and sound economics into harmony will promote economic progress. Both history and economic theory indicate that democratic elections alone cannot establish an environment conducive to economic progress.
James D. Gwartney is professor of economics and policy sciences at Florida State University. He is an expert on such economic issues as taxation, labor policy, and the economic analysis of government. Richard L. Stroup is professor of economics at Montana State University. He is an expert on privatization, the environment, and Superfund.
“Where Do We Go From Here” is a feature service of the Prairie Centre”
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