Burning issues of government spending

The Biden administration recently proposed a $2 trillion spending plan supposedly aimed at improving the country’s infrastructure. The White House’s “fact sheet” says the plan will make “investments that leading economists agree will give Americans good jobs now and will pay off for future generations.”

Article by Thomas L. Hogan from AIER.

Despite these claims by the administration, most economic research shows that government spending during economic expansions, even on investments such as infrastructure, is wasteful and unproductive. On net, the Biden plan is unlikely to create good jobs now or other benefits in the future.

When is government spending productive?

Government spending can, in some cases, help improve economic activity. During times of recession, for example, government spending programs can be used to hire unemployed workers when private companies may be unwilling or unable to do so. Ideally, fiscal stimulus can push the economy back towards a long-run stable growth path.

The problem is that government spending also crowds out private spending in two ways. First, some spending is used to hire away workers and resources from private companies. During times of economic expansion, there are fewer unemployed workers to draw upon, so higher spending tends to drive up prices with little increase in production. Second, spending must be financed by taxes or by issuing government debt, either of which reduces the funds available for private investment projects.

Economists try to determine whether a program creates net benefits for the economy by measuring the “multiplier” of government spending. A multiplier greater than 1 indicates that $1 of government spending produces more than $1 of total spending in the economy. A general finding of this research is that increases in spending can be productive during a recession since it can draw upon workers and resources that are currently unemployed. In an expansion, however, increased public spending tends to crowd out private spending, causing a reduction in total spending.

In a recent study, for example, economist Valerie Ramey reviewed the academic research on the effectiveness of government spending. For periods of economic expansion, most studies found multipliers in the range of 0.6 to 0.8 but possibly as high as 1. So although it is possible that $1 of government spending could potentially create $1 of total spending in the economy, a more likely estimate is $0.80 or less.

The United States has rebounded from the 2020 recession and is currently in a period of economic expansion. The national unemployment rate is down to its long-run average of 6 percent, with many US states exhibiting historically low rates of 4 percent or less. Given the current state of the economy, the research indicates that increasing government spending is more likely to be wasteful than productive.

Is infrastructure investment special?

One argument for Biden’s spending plan is that improving infrastructure will make the economy more productive. The spending plan is framed as an investment that will pay off by improving economic productivity in the future.

This argument, however, is misguided for two reasons. First, politicians do not have the right information to decide what is a good investment and what is not. They always claim to know exactly what the economy needs, but there is no reason to believe they have particular insight as to where spending is most productive.

Second, funds channeled through the political process are more likely to be spent on pet projects rather than on productive investments. We’re sold the dream of modern European-style airports and maglev high-speed rail. In reality, we’ll be expanding the airport in Bumbleweed, Nowhere from three terminals to five, despite the fact that they only use one. Because spending that benefits constituents and special interests is what gets politicians reelected, no matter how wasteful the project.

Does anyone really believe that politicians will ignore their own political incentives and do what is best for society?

If not, why would we expect their spending decisions to be especially productive?

To test whether it is actually beneficial for the economy, economists Ethan Ilzetzki, Enrique Mendoza, Carlos Végh looked specifically at government investment spending, such as infrastructure projects, to see if it improves long-run productivity. They found that it does not. In high-income countries, even investment spending has long-run effects of only $0.66 per $1 spent.

Their study also found that spending is less effective in countries with higher levels of government debt, which crowds out private investment. Once debt exceeds 60 percent, as it does in the United States, the multiplier is actually negative. This again indicates that increased government spending will be wasteful and unproductive.

Who wants to waste money?

Politicians benefit from wasteful spending. They always claim it will improve the economy, even though the evidence says otherwise. The debate around fiscal spending is like the panel discussion, “Should the Government Stop Dumping Money Into a Giant Hole?”

Yes, that’s from The Onion, but such is the current state of the discussion.

Any spending at the federal level is subject to inefficient political incentives and a wasteful bureaucratic process that crowds out private investment. These issues affect even the most productive and well-intentioned projects. When the economy is not in recession, $1 of government spending increases total spending by $1 at most. Research shows that it’s more likely to be worth $0.80 or less.

Government spending starts with taking money from taxpayers and setting 20 percent of it on fire. Even if the remaining funds were spent on very efficient projects, they have very little chance of creating net benefits for the economy.

‘The Purge’ by Big Tech targets conservatives, including us

Just when we thought the Covid-19 lockdowns were ending and our ability to stay afloat was improving, censorship reared its ugly head.

For the last few months, NOQ Report, Conservative Playbook, and the American Conservative Movement have appealed to our readers for assistance in staying afloat through Covid-19 lockdowns. The downturn in the economy has limited our ability to generate proper ad revenue just as our traffic was skyrocketing. We had our first sustained stretch of three months with over a million visitors in November, December, and January, but February saw a dip.

It wasn’t just the shortened month. We expected that. We also expected the continuation of dropping traffic from “woke” Big Tech companies like Google, Facebook, and Twitter, but it has actually been much worse than anticipated. Our Twitter account was banned. Both of our YouTube accounts were banned. Facebook “fact-checks” everything we post. Spotify canceled us. Medium canceled us. Apple canceled us. Why? Because we believe in the truth prevailing, and that means we will continue to discuss “taboo” topics.

The 2020 presidential election was stolen. You can’t say that on Big Tech platforms without risking cancellation, but we’d rather get cancelled for telling the truth rather than staying around to repeat mainstream media’s lies. They have been covering it up since before the election and they’ve convinced the vast majority of conservative news outlets that they will be harmed if they continue to discuss voter fraud. We refuse to back down. The truth is the truth.

The lies associated with Covid-19 are only slightly more prevalent than the suppression of valid scientific information that runs counter to the prescribed narrative. We should be allowed to ask questions about the vaccines, for example, as there is ample evidence for concern. One does not have to be an “anti-vaxxer” in order to want answers about vaccines that are still considered experimental and that have a track record in a short period of time of having side-effects, including death. One of our stories about the Johnson & Johnson “vaccine” causing blood clots was “fact-checked” and removed one day before the government hit the brakes on it. These questions and news items are not allowed on Big Tech which is just another reason we are getting canceled.

There are more topics that they refuse to allow. In turn, we refuse to stop discussing them. This is why we desperately need your help. The best way NOQ, CP, and ACM readers can help is to donate. Our Giving Fuel page makes it easy to donate one-time or monthly. Alternatively, you can donate through PayPal as well. We are on track to be short by about $4100 per month in order to maintain operations.

The second way to help is to become a partner. We’ve strongly considered seeking angel investors in the past but because we were paying the bills, it didn’t seem necessary. Now, we’re struggling to pay the bills. We had 5,657,724 sessions on our website from November, 2020, through February, 2021. Our intention is to elevate that to higher levels this year by focusing on a strategy that relies on free speech rather than being beholden to progressive Big Tech companies.

During that four-month stretch, Twitter and Facebook accounted for about 20% of our traffic. We are actively working on operating as if that traffic is zero, replacing it with platforms that operate more freely such as Gab, Parler, and others. While we were never as dependent on Big Tech as most conservative sites, we’d like to be completely free from them. That doesn’t mean we will block them, but we refuse to be beholden to companies that absolutely despise us simply because of our political ideology.

We’re heading in the right direction and we believe we’re ready talk to patriotic investors who want to not only “get in on the action” but more importantly who want to help America hear the truth. Interested investors should contact me directly with the contact button above.

As the world spirals towards radical progressivism, the need for truthful journalism has never been greater. But in these times, we need as many conservative media voices as possible. Please help keep NOQ Report going.

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