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bastiat-vs-barber

Some people just don’t get it. That is the only conclusion I can reach after, having picked up my copy of the Metro this morning, this affront to economics greeted me on the front page:

“More than 1.3million private sector have been lost since 2008 but the blow has been cushioned by an increase in public sector posts, the TUC said.”

Let’s examine this carefully. The private sector has shed jobs and the government has increased taxes (OK it may have borrowed, but borrowing is just deferred taxation) to pay for an expansion of the public sector. The TUC believes, then, that raising taxes lessens the impact of an economic crisis. It really beggars belief: “oh, you’re shedding jobs at the moment? Don’t worry, I’m from the government and I’m here to help. Dip into your struggling profits, give the money to me to spend and everything will be dandy!”

Such a view is, clearly, ridiculous. Increasing taxes to pay for public sector expansion reduces the amount of money we have to spend on other goods and services. Whilst new jobs are created when the government spends money, other jobs are lost when it raises the money it spends. Instead of having the private sector grow its way out of recession, we end the process with an enlarged public sector and a shifting of costs from the private sector to the taxpayer (and the creation of new ones if we include more generous public sector pensions, administration etc).

Just think about it a moment. If an expanded public sector is the best way of coping with recession, why don’t we abstract the TUC’s argument to its logical conclusion? Why not call for the nationalisation of all industry the second Britain dips into recession? Do we restrain ourselves because we know that doing so would kill prospects for growth?

Brendan, to quote Bastiat, “you compare the nation, perhaps, to a parched tract of land, and the tax to a fertilizing rain. Be it so. But you ought also to ask yourself where are the sources of this rain and whether it is not the tax itself which draws away the moisture from the ground and dries it up?”