Like the Congo dandies, who spend all of their money, and even go into debt, to buy nice clothes; that do nothing to improve their bleak and grinding poverty.
Or one of those contracts through the stimulus I spoke before, where they were buying just slightly smaller tile than usual to renovate national monuments.
Yes, money wasted. Because Government spending will in many cases be of poor quality. We go into debt, to spend money that is simply wasted.
To go to the furthest example, we spend money in poor places like Haiti, billions in fact, but they’re still grindingly poor. Spending money in a place, does not guarantee economic activity, because it all depends on how the money is spent.
Japan disproves it. They show that this method has a flaw; internalizing your debt does have a consequence.
If more and more of your Government, and your economy, becomes just about servicing a public debt, that suffocates what the else the economy could be doing.
Do that for a generation, and you have a series of lost decades of 1% growth or less.
Because USD has the status of reserve currency, but that’s a status that can be revoked, and we’re committing actions that are endeavoring people in other nations to see that it is.
There are at least two avenues this can happen; the cryptocurrencies, which are gathering a large following in Africa and Asia due to lack of traditional banking infrastructure (Africa in fact, leads the world in digital banking usage), or the IMF, who has it as a stated goal, to take the reserve currency status away from us.
You’re taking this for granted, as if its immutable, but I don’t see that we should. Even this status has a constraint, if not a deadline.
?? No it doesn’t. Without the Government spending money where we don’t need it, chasing after things where it is simply wasted, the economy would grow faster, and more holistically, or as Nassim Taleb would put it, with more anti-fragility.
Venezuela, as you broguht up, is the perfect example of this. It didn’t save money, it blatantly wasted it on projects and labor the public sector didn’t need, hollowing out the private sector.
Thus, when the collapse in oil came, it both had no money to call upon, and no “other” core of their economy to take lead. It economy was highly fragile, because it didn’t spend or save its money with any sort of constraint, or with any ideas for how it would assist their economy in other areas. Ergo, no focus was given to wealth creation.
By contrast, Estonia believes in “Governmental minimalism” , as does Botswana, and the their results have been quite encouraging. Estonia is a silicon valley of Europe, and Botswana is one of the few African nation who doesn’t require aid, and can feed itself. Nations who seek to spend as little as possible, or at least match their spending with a cost-benefit analysis approach, prosper.
Spending for spending’s sake, with no attention paid to what that spending does, is a recipe for simply diminishing yourself.
Uh… the article I gave you was from 2012.
I don’t agree, I think it’s pretty clear that a nation can build funds for such usage, even if you don’t have much in the way of exports yourself. Exports make it possible, but they don’t have to reach Norway or Kuwait’s levels to make sovereign funds themselves possible.
Hong Kong didn’t have many things to export, it basically just became a conduit of trade; a place for other nations to export.
Rwanda right now, which is patterning itself after Singapore, has sought to keep its debt below that of its regional neighbors, and to specifically keep its public debt from crowding out credit from being supplied to private borrowers. They’re building their sovereign fund, partly through exports, and partly through money their own people voluntarily give them.
The result has been that Rwanda today is one of the the African Lions. Surging developing economies who could displace the BRICs, and perhaps even China as a center for manufacturing.
Again, quality, this is the point you keep avoiding. It doesn’t matter if the private sector would match every dollar, because not every dollar should have been spent in the first place.
The Government spends money, where it should not be spent, it builds things, that should not be built. These actions have deleterious effects on our broader economy, as it just results in open rent seeking, with no wealth creation.
And if you have just more spending with no wealth creation, you make your economy more fragile; less able to handle downturns.
For example, Detroit spends millions each year on road construction, it has some the largest, most extravagant highways you’ve ever seen. But it’s a waste, because they don’t have the traffic to justify those roads being there. Much of that construction, is just a make work initiatives, that shouldn’t be happening. The money would be far better spent, or saved, elsewhere.
Spending money to build infrastructure that is underutilized, which you will then have to spend even more money to maintain, is a waste.
No, that’s not my point.
I’m not denying professionalism by people in the Public sector, I’m not denying that they have knowledge.
What I’m doing is drawing attention to Rational Ignorance, and let me focus on that first part, rational, not irrational.
Rational ignorance is the modeling of knowledge you can reasonably expect people not to have, because they won’t of had reason or the opportunity to encounter it; even if its knowledge they need.
Knowledge in the economy is inherently dispersed, it takes time and resources to centralize it. Private actors make for better aggregators of that knowledge, because they are closer to where the knowledge is made. It takes less time for them to both see, and respond to it.
The Localized Knowledge problem, is easily half the reason why command economies don’t function nearly as well as market economies do. It also explains why between the Public Sector and Private Sector, you have a great divergence in the creation and aggregation of Best Practices.
The Public sector is far more likely to voluntarily adopt practices developed in the Private sector, than the vice-versa. And even in cases where the Public sector did in fact develop a Best Practice, it tends to be a lower-grade example of it in execution.
For example? Project Management. It is a discipline that was developed partly by the U.S. navy, and partly by officials looking to manage the contractors on the Hoover Dam, in order to promote proper use of budget scheduling, and holding people or organizations accountable for work overtime.
The U.S. Government is perhaps still today the largest utilizer of this discipline, but it’s not the best example of it, as projects like the F-35 demonstrate, or even just mid-grade contracting on ship construction.
Or yes, even highways..
Estonia; Governmental minimalism works. I don’t have to apologetic about this, because this is the honest accounting of what Governmental power can be reasonably expected to do.
I told you before about what the clear limitations on prohibition were, and this is the flip side of that same problem. Efficacy of your policy, will rely on what knowledge and what control you can usefully gather & exert.
There are real world limitations on the utility of Government spending & intervention, limitations that have to acknowledged to be usefully navigated.