14 Jun
2010
Posted in: Blog
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Gov’t Spending 44% of GDP

Tonight the Libertarian Party of Manhattan met to nominate their candidates for the upcoming election season.  The night’s “main event” was between Mr. Ryan Brumberg and Mr. Dino LaVerghetta, both registered Republicans running for the 14th Congressional seat.  You can visit their websites here and here, respectively.

I am not going to comment on the night as a whole, or even on the contest between Mr. Brumberg and Mr. LaVerghetta (which ended first in a tie!).  Rather, I would like to focus on a point raised by Mr. Brumberg; namely, that 44% of GDP came from government spending in 2009.

That number is astronomically high, was my first thought.  So I checked: according to this website, the actual figure was at 42.72%.  As statistical collections vary, it’s very possible that Mr. Brumberg’s number of 44% is indeed accurate.  We can therefore take him at his word.  (It may be worth mentioning that the concept of “GDP” is questionable on methodological grounds as well, and a very good case could be made that we don’t need to be keeping track of it at all.  Hong Kong, for example, shunned economic statistics for decades, while experiencing an unprecedented boom, to the envy of Asia.)  I would note also that Mr. Brumberg’s presentation and style convey an appreciation for the precise, and you get the sense he’s studied the numbers, entered them into his Excel file, run and re-run the charts, and only then incorporated this knowledge into his coherent oeuvre of policy recommendations.  Such is the type of candidate whose stump speech includes references to the great Austrian and freedom fighter, Ludwig von Mises.

Surprisingly, the typically economically literate Libertarian crowd looked undaunted.  Mr. Brumberg stressed that this number was too high, and needed to come down.  But in a 5 minute tie-breaker speech, only so much can be said of a statistic.  Still, I’d like to give it some context.

According to the Bureau of Labor and Statistics, there are 2 million civilians employed by the Federal government.  Many of these are low level bureaucrats who lack decision making power.  There are mailmen, FBI agents, Treasury agents, Secret Service agents, SEC employees, EPA inspectors, Social Security Bureau paper pushers, and IRS tax collectors.  We can safely assume that of the 2 million Federal employees, about 95% have no direct say on how our tax money is spent.  Assuming that 5% of government employees direct and allocate (this task belongs exclusively to the Congress, which when full has 535 elected officials), this translates into 100,000 people directing 44% of spending.  Remember that number.

Now let’s clarify exactly what the number MEANS.  Imagine, if you will, Socialism as defined as a system of 100% taxation.  All your produced wealth is spent – or redistributed – by someone else.  100% public property, under the control of government.  You don’t need a Ph.D. in history to know that all attempts to work socialism (think “communism”) failed spectacularly.

The underlying reason why socialism failed was precisely because it centralized decision making authority, and destroyed the information that society uses to organize and prioritize productive activities (in short, prices as expressed in monetary units, e.g. dollars).  This argument against socialism was most famously elaborated by F.A. Hayek, who stressed the role of knowledge in society’s ability to spontaneously organize without central direction.  The extended order, as Hayek called the free market system, worked because it took into account the subjective preferences of all market participants.  Do you like a green shirt rather than a red?  This choice is expressed by your purchase of the green shirt.  The information is preserved through accounting: double-entry bookkeeping, to be precise.  All of these choices are smashed into actionable information on the market, where capitalists seek the most profitable activity; in other words, the activity in the highest demand.  As the capitalists divert less productive resources into more productive resources in their quest for profit, the trend is that attractive commodities become more common, and hence less costly.  Think of cars, computers, cell phones, and electricity.  If it’s popular, the free market makes it cheap by massive proliferation.  This point I consider nearly inarguable.

Now let’s get back to the statistic: 44% of GDP in 2009 came from government spending, directed by, generously, 100,000 people.  100,000 people are approximately 0.03% of the population.  Did that sink in?  0.03% of the population is making 44% of the economic decisions.

But let’s be even more generous, and assume that a full 1 million are directing the funds in some meaningful way.  1 million people is approx. 0.33% of the population.  In a free market with limited government, this number would be a lot closer to 0.33% of the people making 0.33% of the spending decisions – 1:1.

Let’s give it some more meaning.  The nominal GDP for the U.S.A. in 2009 was approximately $14.2 trillion.  This means that if 1 million Federal gov’t employees had discretionary power, each bureaucrat/Representative/Senator spent on average $14.2 million dollars.  Put another way, for all the talk about income disparity, government policy just create 1 million new millionaires from tax collection.  If the number is at the more realistic (though surely still too high) 100,000, each spender was in control of $142 million.  More?  Since, as mentioned earlier, Congress has sole power to allocate funds, 535 elected officials significantly influenced the direction of nearly $6.3 trillion dollars – or almost $14 billion in one year for each coconut on the Hill.  Bill Gates, eat your heart out.

Imagine now how little this tiny proportion of bureaucrats and elected officials know of life, your experiences, your preferences.  Think for a minute how difficult it can be buying a gift for a close friend or relative.  Why should we have any reason to think that people far removed from the impact of their decisions can act with any precision or success?  You’re a statistic, one of 300 million, who surely receives far less attention than the statistic in question in this blog post.

2009 was the year of “Stimulus” which was supposed to “kick start” the American economy.  With this sobering reflection, we see that it was more kicked in the groin and left in the gutter.

44% is an astounding number, and extremely telling of where we’re headed nationally.  It was with some disappointment that I witnessed Mr. LaVerghetta gloss over the mention of this horrid statistic and claim that the election was about “more than economics.”  Sure, of course.  However, it would have been refreshing to remember for a minute what that remaining 56% represents – literally, your tangible freedom.

Mr. LaVerghetta won the tie-breaker by 1 vote, 24-23.  I did not vote.

DISCLAIMER: This post and the contents thereof are the views of only the author identified immediately above and do not necessarily represent the views of the New York Young Republican Club (the "NYYRC"), its officers or its members. The NYYRC expressly disclaims responsibility for the contents thereof and by its charter documents may not, and does not, endorse any candidate for any office, except in a general election.

1 Comment

  • Almost everyone at the Libertarian meeting was a supporter of Dino or Ryan. It was a complete sham to think that the one who just happened to have more friends come along to the meeting would win (tip for all future candidates, stack the room). Brumberg clearly had a better grasp on the issues, understands economics, and unlike Dino didn’t support the stimulus bill! I’m voting for Brumberg.