09 April 2017

The Economics Of Government

The economics of government:

* Govt has no money of its own. Its money is nothing but the people's (tax-payers) money. When govt spends on something, the money doesn't come from politicians - it comes from the people.

* The govt/people's money is finite, not infinite. When it is spent on something, there will be less of it to spend on other things.

* Leftists have succeeded in making 'efficiency' a bad word - by painting it as 'elitist' and 'anti-poor'. The truth is the opposite: there is nothing more pro-poor than efficiency and nothing more anti-poor than inefficiency. Why? Because the poor depend the most on the govt. So they are the ones who lose the most when the govt is inefficient. We must restore efficiency to its rightful place.

* "Giving a man a fish feeds him for a day, but teaching him how to fish feeds him for a lifetime". Poverty can't be removed by simply throwing money at the poor. That will only keep them poor. We must give them the ability to work and earn - ie, we must give them education, healthcare and infrastructure. That is, govt's money must go into investment and not expenditure.

* Debt is bad. When you borrow, you have to pay back the amount you borrowed and also the interest on that amount. So your spending must not be more than your income. This is a basic principle of economic management - every family knows it. But strangely, we don't apply it to our govt.

* A system's efficiency is directly proportional to its simplicity. And nowhere is this more true than for the tax system. Tax exemptions make the tax system complex and therefore inefficient. So all tax exemptions must be removed. As a compensation, tax rates can be reduced.

* Govt's job is to make rules and enforce them. It is not to make products - which can be done much more efficiently by private sector. So all govt-owned industries must be privatised.

* The price of any product/service is decided by the demand for and the supply of that product/service. If prices are decided in this way (the 'free-market system'), then a society's resources will be allocated in the most efficient way. Any deviation from this leads to inefficiency. The two biggest deviations are:
a) Govt directly fixing the price of any product/service
b) Govt paying a part of a product/service's price (this payment is called 'subsidy')
Subsidies reduce the price of a product/service for its buyers. This distortion in the price leads to inefficient allocation of resources in the society. So subsidies are bad.

1 comment:

Sundar C said...

You must watch or read Milton Friedmann. Particularly "free to choose" on YouTube.

This is Sundar from sphs