Mark Steyn was a guest host on the Limbaugh show last week. When I tuned in, he was responding to a caller by comparing two scenarios. He pointed out that when people are allowed to spend their own money, wealthy people spend their money either indulging in goods or services such as yachts, personal jets, magnificent homes, lavish restaurant meals, etc., produced by people who work in all the various vocations involved in bringing about these items, or they choose to try to make more money by investing in their businesses through additional hiring and/or capital investment. If, on the other hand, the government confiscates the rich person’s money, then the likes of Barney Frank, Nancy Pelosi, and Harry Reid spend the money in ways that they see fit. Never before had I considered these two alternatives in exactly this way.
It then occurred to me that there is a further difference, which Mark Steyn didn’t explicitly talk about, and that has to do with the size of the economic pie, a term used by economists to refer to the totality of wealth available to a population. The well-being of each of us is enhanced when the economic pie grows. It’s important to note here that GDP is not the same as wealth. GDP is increased when a hurricane-devastated area is rebuilt, or when additional bureaucrats are added to the employment roles, e.g., the 16,000 IRS agents who will monitor our health insurance policies. Conversely, disaster negatively affects the size of the economic pie by destroying available wealth, and regulation (which is a euphemism for interference) often negatively affects wealth production as well.
When a wealthy person hires people or expands his plant and equipment, wealth is being increased. Similarly, when he buys luxury goods and services, jobs are created and wealth also increases. However, when politicians spend the money, you can safely bet that any wealth created is a very small fraction of the potential benefit because the money either is given to people who haven’t done anything to earn it (and therefore, haven’t created any wealth) or else it goes to projects administered by bureaucrats whose track records for making efficient use of resources is dismal. Our current federal government’s approach to “spreading the wealth around” is manifestly inferior to letting capitalism work its wonders if our society wishes to increase living standards overall.