Because of these "freebies," people will go along with the government's enlargement as a percent of the economy. The masses believe in their free lunch and because the business elite knows it can profit from the growth in government.
However, there comes a point at which the "nanny state" becomes unviable. Raising taxes to pay for the freebies become problematic. Fortunately for the governments, they have a Treasury and/or a central bank that can print money and monetize the government's debts.
As Ludwig von Mises observed in Human Action:
The government will also become involved in larger distractions, such as arguing for the need to eliminate continuously new (usually invented) threats or foes arising from ethnic or religious minorities, communists, socialists, terrorists, spies, or, as is now the case in the US, the "vicious" 1% of the population that lives well.
A political system controlled by an ignorant electorate that is manipulated by a dishonest and controlled media that dispenses propaganda on behalf of a corrupt political establishment can hardly be the path to lasting prosperity.
In fact, I am surprised that economists continue to discuss GDP growth (usually in real terms), when they should be focusing on sustainable growth. Let me explain. Since 2000, US government debt has increased from US$5 trillion to over US$16 trillion. Over the same period, nominal GDP is up from approximately US$9.5 trillion to US$15.5 trillion.
In my opinion, an adjustment to GDP should be made for the increase in government as well as household debt, because both inflate GDP figures, but are not sustainable in the long run, as we now know from some peripheral European countries. I mention this because Eric Fry, writing for The Daily Reckoning, points out the following:
So, not only do fiscal deficits allow the government to expand useless and unproductive programs and expenditures that artificially boost GDP, but they also increase the number of bureaucrats who implement the new regulations that stifle business. To the neo- Keynesians, I can only say: "Well done."
Dr. Marc Faber
for The Daily Reckoning
October 31, 2012
Posted by Naxal Watch at 3:53 PM