The wages of government

For those not familiar with the Golden State’s problems, here they are in a nutshell:  we are dealing with a budget deficit over 20 billion dollars.  A series of ballot initiatives, basically to raise taxes, all failed, and the state is slashing expenditures across the board.

As Mises so accurately described it many years ago, a dollar of public spending necessarily offsets a dollar of private spending.  In fact, the problem is much worse as the Austrian school is precise to detail.  For the government dollar doesn’t simply replace a private dollar, it is actually destructive.  The dollar of government spending not only crowds out an equal amount of private spending, but the dollar spent by the government necessarily is consumptive.  Thus, whatever is spent is gone once consumed.

Since the dollar spent by the government must come from somewhere, it comes from taxation or from borrowing.  Both dollars are taken directly from what would otherwise be the pool of loanable funds, which would then be invested into wealth creation.  Thus public expenditures necessarily destroy what would otherwise have been created.

Now, California has been on a public spending binge.  Lest anyone think that California Forward is some “right wing” think tank, note that its leadership council includes labor leaders and a former director of OMB for the Clinton administration.  It is a “bipartisan” group, which of course means they equally favor leviathan.

One way to measure change in state spending, is to track spending per person.  Over the past ten years, controlling for inflation, California’s per capita spending has risen by 41 percent, increasing from $3,244 in 1997‐98 to $4,565 in 2007‐08.

41 percent increase in per capita spending.  And we wonder why California is in such dire straits.

Here’s an extremely interesting piece of information.  California’s spending on health and human services has increased in the past ten years by 127%.

Sometimes, even the most benign of observations is the most damning.

Under California’s tax rules, high‐income earners pay a larger percentage of their income in income taxes than do middle‐income and low‐income earners.  One result is that during good fiscal years, a large number of very wealthy Californians pay high taxes.  But during downturns in the economy, the amount of tax payments from the very wealthy drops dramatically.  As a  result, the state must content with significant fluctuations in personal income tax.

Not only has the public spending skyrocketed, destroying wealth in the process, but the wealth generating class has been the victim of an ever increasing amount of theft.

The good news in all of this is that what has happened to California is soon spread to the rest of the nation once Obamanomics takes effect.  Debt fueled consumption, ballooning public expenditures, wealth confiscation, and massive crowding out of private investment lead a state, and a nation, to poverty.  But hey, the best part of all is the misery will be shared equally.

The only thing California, or any state for that matter, cannot do is print money.  Well, Uncle Ben has that one taken care of quite nicely.  So, on top of everything else, we’re going to get massive inflation.



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