Monday, July 14, 2014
Government Claims to Be Making "Investments" with Your Tax Money, Sometimes it is an Investment, Most of the Time It's Not
Government Claims to Be Making "Investments" with Your Tax Money, Sometimes it is an Investment, Most of the Time It's Not Often Experts Say that Government Deficit Expenditures Are Just like Businesses Borrowing Money to Make Investments. is that True? Lex Loeb Contributor Network . Government officials and politicians often claim that their spending is going towards Investments that serve the public. Sometimes it is true and some times its not. Here is how to tell. First of all we have to define what an investment is. An investment is intended to yield more capital over a period of time than is originally allocated to the purpose for which the money is used. Second we have to define what the purpose of goverment spending is. Government spending is supposed to be for the public in the most general sense. It is true that government spending is not necessarily supposed to be targeted to just those whom happen to pay the taxes nor is it just to those who can't afford to pay taxes. In assesssing whether a government spending program is an investment or not it has to meet the test of both being something that will generate more capital than originally allocated which should have the effect of moderating the need for future taxation and/ or it also has to be allocated to a program that returns value and benefits directly to the public. The common cost benefit analysis used by government officials to justifly project spending usually leaves out the basics of what a proper use of investment funds is because government officials would like the public to believe that everything they do with your money is really for the public and is somehow an important investment. Before any cost benefit analysis is done the first thing to do is to determine whether the project or proposed spending program is actually an investment or just rutine spending. There are lots of examples of programs that were billed as investments that never really were. Government has the option of spending money for the sake of spending money but that does not make it an investment nor does it necessarily make the spending wasteful. An example is spending the money on defense. Defense is a never ending cost but even the most sophisticated new submarine or aircraft carrier is not an investment in that it fails to produce any long term capital appreciation and but the spending on defense is decidedly for the protection of the general public which is a plus but still does not make it a public investment. It is public spending. So long as the sign reads No Tresspassing Federal Property the pentagon is not providing general benefits. The only way a fancy new super submarine is an investment is as a investment that may yield military superiority which is definately a public good. But doing the numbers a billion dollar fancy new submarine may be state of the art but it may not be as cost effective of retaining 10 aging submarines and not spending money on a new one until the old ones are hopelessly obsolete. Keeping old submarines running , if cost effective and saves money may be the better investment the same way that someone who goes out and pays top dollar for a brand new luxury car may be making a worse investment than just keeping their old car. The opportunity costs of loosing the money for having something new and flashy to boast about is lost capital that could have been saved and put into something else that genuinely appreciates invalue unlike new cars that automatically depreciate in value the minute you buy one. Government spending that may look like an investment may not really be such a thing, Take the existing nationwide power grid as an example . It may be old fashioned and out of date . Building a brand new power grid may do a lot to save some energy and may be a little or a lot smarter but the question is if there are any real saving to the ulitility customers or if it's building will actually create utility victims? If the costs of building the new electric grid cost more than any actual savings than it may not really be an investment. Remember if Governments tended to be great investors they would not need to raise taxes but would otherwise pay dividends to citizens with direct payments. Government infrastructure is usually beyond rational cost so the investment yields are a future of raising taxes to sustain projects that never paid off investment returns. Don't be fooled by big public spectacle projects as they usually cost more in expenditures and energy than they save , never return a profit and rarely do much that is equitable for all citizens. Thing Government power plants. People living near these plants may get material benefits but all US citizens may pay for those benefits to others. Talk about government creating economic equity among all citizens. Does not work out that way. Never did in the hardest core socialist and communist countries where wealth inequality was even worse than America.