Friday, June 10, 2011

Economics 201

Lets get something straight – governments have no money.
I do not mean that they are broke – insolvent – I mean they have no internal means to finance themselves.
You and me, we can go to work for someone who is willing to pay us for our labors and we earn money, with which we buy food to feed ourselves and pay our bills, etc.
The government – be it on the local level, the county level, the state level, or the federal level – must take money from someone else in order to finance its operations.

The government is basically a service organization, invented to handle tasks that we as individuals cannot, or choose not, to do.
Services such as provide protection from criminals, or put out fires at our homes while we are away working, of control traffic on the roads so everything runs in a safe and orderly manner.

To do all these things for us, government collects money from the people it serves by collecting taxes.
Since some taxes are more burdensome on some people than other people, there are many different kinds of taxes.
All of these taxes are of two basic types – taxes on income received, or taxes on things purchased or owned.

The government is not us and they.
The government IS US.
WE ARE the government.
This is true even of totalitarian governments.
This may not seem true but think about this for a moment.

“Government” was the creation of people to supply a needed service – protection.
You may have heard the phrase “might makes right” and to some extent it is true.
It is often the case that the stronger of two people will prevail in a conflict.
It is also true that the stronger of two groups will prevail in a conflict.
Thus, if one group is threatened by another group, it will seek to become as strong as possible to defend itself against the group that is challenging it.

Think about the organization of a basic group of people.
Start with a primitive community – just three or four families living near each other.
Each family might be mostly self-sufficient and go days or weeks or months without contact with the other members of the community.
But at some point, for some tasks, someone will seek or need help from one or more of the other families.

It could be that the men decide to go hunting for a big animal for food, and one of them knows where some are or have been.
The others may not know this information.
So the others will follow his lead in the hunt.
Another man may be better at making arrowheads or stone knives than the others, so soon, the others either learn from him how to make better tools, or they just trade for new tools from him.

Over time, a single person or family will rise to become the “leader” of the group/clan/tribe.
Other members will look to the Leader to organize them in a way that will best protect them from outside threats - whether from wild animals or other groups of people.
They did not know it, but they just invented “government”.

As time passes, the leader would require some form of commitment from the subjects/followers to allow him/her to perform the leadership functions without having to spend as much of his/her time doing the everyday things that the other families do.
This may be a commitment of time for service – tending the leader's crops a few hours each week, for example, or each family bringing some of their crops/meat to the family of the leader to compensate for the fact that he/she does not have time to tend to such tasks – or both.
They did not know it, but they just invented taxes.

As the community grows protection of the group will become important.
Any community – even primitive ones – need real estate – territory – to hunt animals for food and/or grow crops.

Even in totalitarian governments, both elements need each other.
It may be that the common people are not treated fairly and suffer hardship under the policies of the government, but they need some of the services the government provides.
And the government needs the people.
It needs some of them to staff the army and police – the very organizations that may be mistreating the people.
It needs the food the people produce.
It needs the products the people build in the factories.
If the practices of the government become so harsh that the people begin to die or revolt, then the government will have to adjust its policies or be overthrown.
It has happened before, it will happen again.

It this point you may be asking, “what is the point of this?”.
Fair question.
The point is (ta da) government has no money of its own.
It must fund its operations from money it collects from the working people.
But consider this – there is only so much money in a country at any given time.
It ALL belongs to the people – not the government.
So the more money the government takes from the people, the less money there is left over for the people to spend on the things they want.

Yes, new wealth CAN be created, but it takes time.
So the total pie can and does get larger, but at any given moment, that pie is only so large.
Government does not create new wealth.
Government does not make the pie grow larger.
Only private companies make the pie grow larger.
The more money the government takes from that pie, the less there is left in that pie for everyone else to spend.
Government can only take money from one person and give it to someone else.
Government only moves money around in the current-sized pie, it does not and cannot make the pie larger.
Because government does not invest the money it takes into enterprises that will grow and create new jobs or new wealth.

Thus, any dollar that the government spends or gives to someone, came from someone else.
So the unemployment payment the government gave to John Jones this week, came from all of Mr. Jones' neighbors who are still earning a living by working.
The salary that the government pays to Suzi Smith who works in the unemployment office, which pays Mr. Jones his weekly check, came from Ms. Smith's neighbors who are still earning a living by working

Every dollar that the government takes from its working citizens is a dollar that those citizens cannot spend themselves.
Those dollars taken by the government are not as useful – or “valuable” - as dollars paid to people who earn them by working.
Because the persons who earn the dollars do not get to make the decisions on how or where (or whether) to spend their dollars.
Which is more useful to you, you spending your money on things you want/need, or your neighbor spend his money on things he wants/needs?
It is the same with the government.

The government MAY spend that dollar in a way that is acceptable and useful to the person that the tax dollar was taken from, or the government may spend that dollar on a study of the mating habits of fruit flies.
(by the way, someone ASKED the government to pay for that study of mating habits of fruit flies)
If we, as citizens, do not pay attention to what our elected representatives do with our money, and call them to task on spending that we disagree with, we will have out of control spending by our government.
Oh, wait.....

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