A recent comment raised an interesting discussion topic regarding the government’s use of private resources. We know from Monetary Realism that resources precede government. And we use government as a tool of society to move resources from the private domain to public domain for public purpose. The general hope is that we will somehow increase the overall living standards of the nation in doing so. So we build a large and powerful military that protects us from foreign enemies. We establish entitlement programs that help take care of those in our society who can’t take care of themselves. We use the government for many different public purposes. Some excessive, some not so excessive. You get the message….
The thing that makes all of this so contentious is the idea of increasing living standards and creating real wealth. What is wealth to one person is not necessarily wealth to another person. To a man without a job, he is wealthier if the government pays him unemployment benefits for a period of time. But to the man who has a job those benefits are seen as a potential cause of inflation, maybe even a moral hazard that might reduce the living standards of others (a form of redistribution, if you will). And to a business owner on the other end of this jobless man’s spending, the unemployment benefit is directly enriching him. You see the tangled web here. But what it all comes down to is what is real wealth? Are we wealthier as a society if we take care of the elderly? Are we wealthier as a society if we build bombs that get destroyed and kill other human beings in the process of protecting the nation? Are we wealthier as a nation if we build bridges to nowhere? What about bridges to somewhere? And what if the workers building the bridge to nowhere help keep corporate profits high which helps keep unemployment low?
The answer in so many cases is “it depends”. Welcome to the world where economics and politics collide.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.