sylvain courcoux

internet entrepreneur

my blog

Government spending equals other people's revenue

It's quite a common theme in American politics: cut government spending and that'll solve problems. That's actually a cornerstone policy of the right side of the political spectrum. The premise is that lower spending means lower taxes and a more efficient allocation of resources because individuals are more apt than government at determining which spending will yield the highest return, in theory. So basically, cut spending and things will be better because there's an invisible hand that will manage the economy.
But then you might ask "so which spending do you want to cut?" The answer is much less straight forward than the premise and usually sounds like "blah blah blah." Cut spending? About we close some huge military base? "Oh no, not that spending!" because of course that government spending represents a huge source of income for those living nearby. How about cutting public retirement pensions? "Don't you dare touch that spending" would the retirees say. How about we cut spending by reducing road maintenance and construction? What are the employees and companies of that sector going to think? "Oh no, don't cut that spending!" Simply put, cutting spending seems to be an appealing policy option until such policy makers have to answer the logical follow-up question: "so whose revenue do you want to cut?" The answer usually turns to eliminating some vague waste and cutting spending on the politically weak, like the environment for instance.
So cutting spending is not necessarily the magic and effective policy that advocates claim because government spending equals other people's revenue. So cutting government spending is necessarily going to impact and depress some part of the economy because you're essentially cutting someone's income.