If
Government Measures its Own Size,
Can it be Right
by
Ed
Dedelow
The
Declaration of Independence was an announcement
that the power of voice the People would
be wrestled from ennobled leaders who
had their roots firmly imbedded in thousands
of years of history. To enforce the ideal
and to secure that voice for other people,
two wars were fought against the Kings
of England, a costly civil war was fought,
and two wars were fought against Germany.
For decades, a Cold War was carried on
against communism where totalitarian rules
enshrined leaders who were supported by
legislatures that would act in accordance
with the leader or risk death and/or imprisonment.
Heroes of the United States fought in
North Korea, Viet Nam, Iraq, Afghanistan
and countless other places throughout
the globe to protect our voice and to
give voice to the masses of other nations.
From the time George Washington
refused to accept a position as king and
omnipotent power, the United States has
been in a battle within our own boundaries
to protect the voice. Ironically, it was
Karl Marx who said, "The more a ruling
class is able to assimilate the foremost
minds of a ruled class, the more stable
and dangerous becomes its rule."
x
You may wonder what the
above chart and preceding comments have
to do with each other.
They have a lot to do with
each other but you will have to wait.
I am going to talk about
GDP (Gross Domestic Product). You think,
Who cares? Actually, you do and you care
a lot. Economic advisors use this figure
to advise politicians on tax increases
by comparing total tax collections to
the GDP. Investment houses use it as a
measure of economic health and growth
or to invest and advise investors. You
care because, if it is not accurate, Congress
may tax too much or you may invest when
you should not. According to the BEA (the
US Department of Commerce, Bureau of Economic
Analysis), taxes for 2008 were 35% of
our GDP. That is nearly the same as they
concluded for 1974.
Many of you were not around
in 1966 when taxes were just 24% of GDP.
From there, we had a rapid increase to
the 35% level in 1974. Additionally, government
mandated that the private sector spend
billions to clean up the environment.
The result was inflation that rose to
nearly 14%. Government had legislated
and taxed in order to increase its control
over the private sector.
GDP supposedly measures
how much is produced by American industries
for any given period of time. Government
has a special place in that figure. Virtually
anything government spends money on, excluding
retirement and welfare, is added to GDP.
This includes fraud, graft, corruption,
waste and bridges to nowhere. These same
expenditures in the private sector are
not added. In the private sector, basically
only final retail sales are added. And,
as a matter of fact, the BEA adds both
government taxes and expenditures to the
GDP. I call it miracle accounting, because
doing this makes GDP larger and taxes
appear less. In addition, if government
enacts legislation that requires a business
in the private sector to build a bridge,
even if it has nothing to do with its
business, that is not a tax, nor is it
included in GDP. No legislated, mandated
or legal cost paid out by the private
sector, even if "forced by government"
is figured as a cost of government, nor
is it included as a tax.
So let us review. If the
government builds a bridge to nowhere
with tax money, the spending increases
GDP and our lives are supposedly improved
(I guess we have been stimulated). But,
if the private sector is "legislated"
(forced) to build that same bridge, that
spending will not be added to GDP. Thus,
if the government wants to hide its spending
and keep taxes low, it can just legislate
an expense or transfer the costs to the
private sector and spend the saved money
elsewhere, as it chooses.
If Congress can legislate
and require the private sector to pay
for new government programs or comply
with laws and, not be held accountable
for the cost of such programs in the GDP,
government can take over the economy and
never raise taxes. Isn't that cool? Because
of the government's miracle accounting,
we are told taxes are only 35% where,
in fact, they are nearer to 50%. Our legislatures
can then point to this 35% figure and
argue that taxes can and should go higher
because the French pay 46.1% of GDP, the
Belgians 46.8% and the Swedish 49.7%.
Aren't we lucky!
From a serious standpoint,
I often tell people that our government
controls over 70% of the economy. I am
looked at with some curiosity, which does
not surprise me. If, however, we apply
a correct calculation, not the miracle
accounting government uses, and we add
taxes of 50% instead of 35%, litigiousness
of about 6% , and regulation of 10 to
15% then divide that by a figure that
does not include government spending,
we can only conclude that the government
controls close to 70% of the economy.
And this figure continues to grow.
The chart above shows how
much more efficient the private sector
must be to break even when government
increases its control. I estimate a growth
in government of about 3% annually which,
at 70%, would require a 7.5% increase
in private sector efficiency just to break
even. That would be extremely difficult
to achieve and explains why jobs are being
shipped to foreign manufactures, why wages
are declining and why we import as much
as we do. And who pays the increasing
cost of Government? If our government
controls 70% of our economy, it is not
just the rich, everyone pays.
And, now, the explanation
for the first two paragraphs. The reasons
we defend ourselves are obvious when a
dictator is killing people and taking
away individual rights. In a similar manner,
the Cold War involved defending ourselves
against a system that challenged our way
of life and kept millions behind guarded
walls. This, too, was a war that had to
be won. Now, we face a war from within;
it is a silent war. As can be seen from
the chart, sustaining our freedom will,
at some point, be impossible since our
efforts to achieve must be infinite. We
have lived off cheap imports and a strong
dollar, but that can change quickly.
Lately, we have been losing
the war from within that was declared
233 years ago. Only a few are aware of
the seriousness of the challenge that
faces Americans because of the way our
government measures our economy. It is
time to jump into the game and it is time
to reassess the way government measures
its size.
Think about it.
Think outside the box.
Scientific Capitalist
http://moderneconomies.com/
