How Government Spending Hurts the Economy—Rothbard

“[In this chapter from Man, Economy, and State, Murray Rothbard explains how government employees consume productive resources, while both taxes and government spending distort the economy.”

“In short, government bureaucrats do not pay taxes; they consume the tax proceeds. If a private citizen earning $10,000 income pays $2,000 in taxes, the bureaucrat earning $10,000 does not really pay $2,000 in taxes also; that he supposedly does is simply a bookkeeping fiction.1 He is actually acquiring an income of $8,000 and paying no taxes at all.

Not only bureaucrats will be tax-consumers, but, to a lesser degree, other, private members of the population as well. For example, suppose that the government taxes $1,000 away from private people who would have spent the money on jewels, and uses it to purchase paper for government offices. This induces a shift in demand away from jewels and toward paper, a decline in the price of jewels, and a flow of resources from the jewelry industry; conversely, paper prices will tend to increase, and resources will flow into the paper industry. Incomes will decline in the jewelry industry and rise in paper.2 Hence, the paper industry will be, to some extent, beneficiaries of the government budget: of the tax-and-expenditure process of government.”

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