Wednesday, August 21, 2013

Why Private Sector Spending Improves the Economy and Public Sector Spending Doesn't

If, as conservative economists claim, spending by the public and private sector business improves the economy and like the proverbial rising tide, "floats all boats", then why doesn't government spending work the same way?  Surely, somebody out there is earning money from all that government spending.  Let me offer a simplistic example that might, perhaps, help those of us who didn't study economics in college to understand the fatal flaw in the Keynesian model - the economic model all the progressive nations use in determining public spending policies.

Imagine, if you will, it's the early 19th century. You are on a sail-rigged trading vessel off on a trading mission.  A sailing vessel is an immensely complex machine that requires many people with highly developed technical and physical skills to operate.  The captain runs the overall operations. There are navigators, rope-makers, sail-makers, topmen, officers, coopers, surgeons, carpenters and cooks, all working together to get the boat from one place to another with a cargo for sale.  Sell the cargo, the crew gets paid, resupplies itself, repairs its hurts, picks up another cargo and its off again across the sea.

If the ship is well run and no disasters strike it, a ship of this type is a happy ship and a profitable ship. The crew gets back to home port with money for their families, the shipowners make money which they, in turn, spend on new ships, homes, other businesses and on hiring people to work for them.

When fitting out and crewing a ship, the captain is careful not to hire too many people or he will find he has an over-abundance of "idlers", people who are off-duty or "unemployed".  Let's suppose our ship - call her the "USS Progressive" is captained by one of those new enlightened captains.  He has learned by watching that ships which do not flog their crews, treat them fairly and pay them well make more money than the old-fashioned brutal and exploitative trading vessels.  He decides to use the power of his position to make the crew even happier. (Secretly he's been skimming from the ships accounts and made himself rich and now has a big box of gold under his bunk and is terrified that the crew will mutiny and take it from him.) 

So, he skims more off the accounts and starts buying goodies like bonbons and rum for the crew and rewarding them for no particular reason.  He becomes concerned that the idlers might become restless so he hires the larger ones as extra "marines", the captain's law enforcement force. These marines require expensive uniforms and equipment and spend a lot of their time drilling and cleaning their weapons.  Because there are now fewer idlers available when the work picks up, the captain picks up some new idlers at the next port and stuffs them into the crews quarters which is beginning to get crowded. 

Because the idlers are still problematic, he hires any of them who can read to take care of the ship's paperwork.  The ship's paperwork begins to expand dramatically so that soon there are 20 or so "clerks" passing paperwork back and forth, largely generating work for each other and the crew who have to fill out forms and reports on virtually everything they do.  Now the ship has a record of everything that goes on aboard ship, every nail, every foot of rope, every potato in the food locker.  If anyone wants that information it can be delivered right to them after they fill out a form 233/c in triplicate, get it signed by the captain, authorized by the first-mate and submit it to the appropriate clerk who will then perform a file search, collate a report and have it back to you in a week.

The ship is still sailing along relatively efficiently although she recently found herself 200 miles off course because the navigator had neglected to properly file his Form 88-D Change of Course Directive and the Helmsman never received the proper order. The expanding bureaucracy keeps absorbing more idlers, creating even more idlers as ships operations gradually become more and more complex and time-consuming.

As ships operations become more inefficient, there is less to do.  There aren't enough people who aren't busy with paperwork to call on to make course corrections or reset the sails more efficiently so the ship alternately sits becalmed or races along at terrifying speed with all sails set in whatever condition they were before the last Form 777/A Set of Sails Advisory Notice was issued by the seriously overworked First-Mate's clerk.

To keep the ship from being beaten to death, the Captain decides to implement a make-work program for the increasingly mutinous idlers who fear the ship is about to be wrecked or driven under by the wind.  Since the boat is going too fast, the Captain decides that sea anchors should be made to slow the too rapid progress of the ship.  He puts the idlers, who have by now formed a union, to work making sea anchors.  In the interest of fairness he promises to pay them all at bosun's wages.

As the sea anchors are completed, the marines, who, by now outnumber the sailors, deploy the anchors off the stern of the boat, sailors and topmen being busy filling out their quarterly efficiency reports.   The boat slows satisfactorily increasing the ships passage from two months to four.  The ship gently strikes the coast of Guatemala three months later (dragging 33 sea anchors, she didn't have a lot of way on her).  The crew is either dead of starvation or killed in the bloody mutiny that saw the rest of the ship's stores and cargo thrown overboard by the frantic captain who reasoned that if there was nothing left to fight over, the fighting would cease.  He, of course, kept his gold well-hidden.

The ship owners go broke, the village loses a third of its menfolk and a troop of monkeys gets to the gold first and festoons themselves with the most attractive jewelry, thus sparking the legend of the lost tribe of rich and nattily-dressed little people of the Watoon Jungle.

Folks, the Guatemala coast is not that far off.......

© 2013 by Tom King

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