The myth of government is that it is a help rather than a hindrance. It is believed to be instrumental in solving problems no matter how trivial and in improving the living standards of the nation. For generations the political class cultivated this myth because it was a source for increased power and control over its citizens.
Common sense is a rare quality but all that is necessary to understand that bigger government cannot produce prosperity. Two realities cannot be forgotten:
- Government produces virtually nothing in the way of products or wealth.
- Whatever government has, it has taken from productive members of society.
Government can grow only at the expense of the productive sector of the economy. Resources provided to government are taken from the private sector. Hence, the larger the government, the smaller the productive sector. Less in the hands of producers means fewer jobs, fewer business investments, less capital and less goods produced.
A simple analogy is helpful in understanding this point. Consider two families, identical in every respect. Each consists of two parents and three siblings of equal age, ability and motivation. The more people in either family that work, the higher the income and wealth of the family. If family A has two people working and family B has the same two plus another working, family B will have higher family income.
And so it is with an economy. If 90% of the economy is productive, it will create more income and wealth than if only 70% is productive. Only the productive sector of an economy produces goods. Government takes productive resources and either pays it to its employees or redistributes resources to non-producing citizens. Regardless of which is done, no more goods are produced and the productive sector is made smaller by the resources taken from it.
The pie that is available for re-distribution is limited by the private sector (more properly called the productive sector). Bigger government means a smaller productive sector. That means a smaller pie and a lower standard of living than would otherwise be possible.
The shrinkage of the productive sector cannot go on forever without disastrous results. Initially, it merely means slower growth rates for an economy. At some point, it means no growth and then negative growth.
The developed world may be at that point. Europe has experienced sub-par job creation and slow economic growth for decades. The US is now well into its first decade of such performance.
