Daniel Mitchell, a senior fellow of the Cato Institute (he is an Austrian, so rest assured), sent out an email yesterday asking for bloggers to spread his new video on government deficits and spending. I posted it here; it is a bit basic, but it’s meant mostly for a general audience… especially those who do not have such a strong foundation in economics. Nevertheless, it’s interesting to watch, it’s only five minutes, and for me it brought back memories of one of Krugman’s old blog posts, where he says that if we paid for the deficit after WWII then we should be able to pay for this deficit. Mitchell sums up why this is not true.
The video is on YouTube, but I posted a link to my comments (with the video embedded) because I feel that many Austrians will unfairly judge the video based on its comments on “good” government spending. He is reaching out to a general audience, and that should be taken into consideration when judging his opening remarks (he also later sent me some links to other videos which specify his stance on government, and which I will post later).
I definitely do not like the video, and I definitely do not consider him an Austrian economist. He is wrong about borrowing to go to war in WWII. He starts off by saying some things people borrow for are good things to borrow for and that borrowing for other things are not good to borrow for, as if it is a fact. It is not. Borrowing to go on a trip is perfectly fine. A creditor that is doing his due diligence will only lend money to someone that has good financial standing, as such, they can afford it. But the big problem is that he draws a correlation that individual borrowing can be a good thing, and as such government “borrowing” can also be a good thing. He is wrong. Government spending is always bad, economically speaking, since the government has to get its funding from the private sector, meaning there is less available resources in the private sector.
Umm, this is not true “economically speaking.” If the government is able to do things of greater value than the private sector would with that money, then the spending is not a waste. Rothbard conceded this which is part of the reason he began writing on morality. Don’t confuse moral arguments with economic ones.
I’ve never had any success with this series, despite my best efforts and despite my own appreciation of Dan. I’m just not sure about the audience. I always feel talked down to, and the obvious attempt to cater to conventional wisdom is a bit much.
Read “Towards a Reconstruction of Welfare Economics.” The entire paper is based on the “impossibility of interpersonal utility comparisons” which is a moral argument from ambiguity. Difficulty of measurement of “social welfare” changes may be an economic argument but it doesn’t demonstrate that governement spending is universally bad.
Have you ever emailed him about these concerns? He is open to criticism, as he is always looking at ways to improve the videos.
I agree, and I bring these concerns up in my commentary (first link posted and bolded). But, you have to understand that Dan Mitchell did not make this video for an Austrian audience specifically, or even one which is anarchists. The majority of people who make this video believe that such spending, such as WWII, was justified and brought about long-term benefits. Dan Mitchell is looking to avoid largely tangential arguments of this nature to simply push forward a more pertinent issue (an argument against government spending, in general). So, the lapse in logic should be taken under this light. I suggested to him that he be more specific when he argues whether or not government spending can be good, and instead of giving an overarching justification he should simply say “it’s OK when the money is used in self-defense”. Even that can open the door to poor judgement, but is nevertheless better than a general qualifier.
Maybe you should just watch the entire video, instead of judging it based on 56 seconds (or, at least read the body of the message).
Do governments ever produce profits? No. As such, government spending is always detrimental to the economy, since the government has to take from the productive private sector, which does produce profits (i.e. capital and savings) and destroy the savings and capital. It is an economics argument, not a moral argument.
Although I generally agree with you, I think that in this case you are partially incorrect. If you ask the majority of people whether the free-market can provide stable and efficient national defense, or even go as far as to ask whether the free-market can successfully regulate and provide financial services (like banking), they will probably say no (the majority will, at least). You are right that people prefer not to pay taxes. But, I think that you have to weigh in the fact that there is a disconnect in logic between government services and how they are paid for. A person will say, “Well, if I don’t pay my taxes I will still receive these services”, not “I don’t want to pay my taxes, and I don’t want my services”. It’s more of an attempt of a free ride.
Otherwise, I agree with you that government spending is wasteful.
It so happens that the free-market economy, and the specialization and division of labor it implies, is by far the most productive form of economy known to man, and has been responsible for industrialization and for the modern economy on which civilization has been built. This is a fortunate utilitarian result of the free market, but it is not, to the libertarian, the prime reason for his support of this system. That prime reason is moral and is rooted in the natural-rights defense of private property we have developed above. Even if a society of despotism and systematic invasion of rights could be shown to be more productive than what Adam Smith called “the system of natural liberty,” the libertarian would support this system. Fortunately, as in so many other areas, the utilitarian and the moral, natural rights and general prosperity, go hand in hand.
