We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

A triple stimulus

Many developed nations are currently in the midst of the worst recession they have experienced in decades. I would like to call for an economic stimulus to aid in their recovery.

I am referring not to the useless Keynesian orgy of wealth destruction that is often meant by this word, but an obvious strategy for improving economic growth that (mysteriously) most politicians rarely consider.

My proposed means of stimulus is the mass firing of government employees.

Every government employee fired aids the economy in three distinct ways.

First, there is the direct cost of the salary, benefits and retirement of those employees, which must be sucked out of the rest of the economy through coercive taxation, weakening it. Each dollar we leave in the hands of ordinary people is a dollar they can then proceed to spend on things they really want, which is always better for the economy than a coerced expenditure. (To be technical, the Pareto optimality of free exchanges and non-optimality of coerced ones lead us to the conclusion that a dollar spent freely is always of more value than a dollar extracted by force.)

Second, there is the cost to the economy of the negative work most government employees do. Although a small fraction of government employees are engaged in jobs that would exist even in a free society, such as designing bridges and the like, most employees in a modern government spend their time interfering in the productivity of others, reducing their output. Every time we dismiss someone whose job is to produce new rules governing the licensing of hair stylists or who spends their time investigating the conduct of pedicab drivers, we increase the productivity of those who will no longer be harmed by the efforts of those government employees. (Indeed, some individual government employees doubtless reduce the productivity of hundreds or thousands of private workers.)

Third, there is the cost to the economy of having someone essentially idle. Most government employees do nothing of actual use, and there is an opportunity cost to that. Such people could instead be doing something of value with their labor — from making chairs to writing computer software to running private enterprises. Every additional chair that gets produced (provided there is market demand for it) increases the wealth of the world. Instead of being a net drain on society, each government employee, once dismissed from their job and allowed to find useful work instead, could be a net gain to society. (Even those government employees engaged in work that might exist even in a free society, such as delivering packages or teaching children, could do so more efficiently if employed in organizations that were disciplined by market mechanisms.)

I would go so far as to say that this triple effect of every government employee dismissal implies a multiplier effect. (The uninformed might naively consider only the direct cost savings and not the other added benefits.)

I will also argue that the more we fire, the greater the stimulus, without any obvious limit short of running out of people to dismiss. There isn’t even any need to wait for a recession to enjoy the salutary effects of such a stimulus — a nation experiencing high growth can still increase it by this mechanism. Unlike other forms of stimulus, it is also possible for even the most impoverished of nations to undertake such a program without the least fiscal risk.

I therefore implore elected officials to adopt such programs as soon as practical. Every day of delay costs.

21 comments to A triple stimulus

  • jerry

    You do realize, of course, don’t you, that this, illogical rant will prevent you from being invited to any more Obama/Huffington/ABCNBCCBSCNN cocktail parties ???!!!!
    After all, the private sector workers ALREADY work for government, one way or another, until almost June of every year. Why not extend that so theat EVERYBODY woks for government ALL OF THE TIME then we would have FULL employment forever !!
    What’s wrong with that ?
    Or are you just another mean right wing fanatic who WANTS dirty water and dirty air and people lying in the streets begging for food and shelter and medical care and everything else ( cars, cell phones and $300 sneakers ) that IS THEIR RIGHT to have !!
    /so

  • Laird

    But, but, but, firing government employees would reduce the GDP (because government expenditures, including salaries, go into the calculation of GSP). In fact, if you fired enough of them you would actually cause a recession (which is defined as a decline in GDP for 2 consecutive quarters). You can’t have a stimulus which causes a recession!

    And also, you haven’t factored in the cost of unemployment compensation payments to those laid-off government workers, which seems to be guaranteed for life these days.

  • newrouter

    Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third.

    The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”[2] By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.

    link

  • Midwesterner (Wisconsin, USA)

    In fact, if you fired enough of them you would actually cause a recession (which is defined as a decline in GDP for 2 consecutive quarters).

    Easy solution. Fire them all in the same quarter. Voilà! No recession.

  • RRS

    And now for an octogenarian contrarian view:

    In the US and to a degree in the UK, for about the past 50 years we have observed the correlation of transformations in the governments and the transformations in the characteristics of the members of those societies.

    Economic growth in a society, that is growth not expansion, results from the ends sought by its members and the means chosen for those objectives. The selection of the ends and means reflect the motivations of the individuals and groups comprising the society. There has been a substantial transformation in motivations as is reflected in the ends sought and means selected, as determined by the time horizons of the motivations of the members of our society.

    Academic arguments may be made as to which of the transformations, that of governments or that of the citizenry, is the cause of the other, or implements the other.

    The time horizons of large sectors of the American public have been decreasing at an accelerating rate for two generations, or so it appears. Some of this has been reflected in Charles Murray’s Coming Apart.

    Economic growth will also be influenced by the motivations of the managerial classes (several layers) which control the accumulated capital sequestered in major business enterprises whose beneficial ownership is fragmented and dispersed.

    For all the chatter about the economic growth, it cannot be achieved without sufficient motivation based on longer time horizons in the selection of things to do and things to forego.

    Thus ends the lesson for this day!

  • The Pedant-General

    Another side effect could be a significant improvement in the level of discussion in politics – people would being to see clearly that a) the vast government apparatus wasn’t actually doing anything – which would tend to make them more suspicious about anyone who wants to build it up and b) some services provided were important but that there are now private providers scrambling over each other to do it better and cheaper and more flexibly – i.e. there has to be a jolly good case for taking something out of the free market….

    We can but hope.

  • Reconstruct

    This might explain why places like Newcastle – which constantly complain about being the victims of ‘savage cuts’ also has the most rapid rise in employment in the UK.

  • Jaded Voluntaryist

    Third, there is the cost to the economy of having someone essentially idle. Most government employees do nothing of actual use, and there is an opportunity cost to that. Such people could instead be doing something of value with their labor

    I think you’re giving government employees too much credit. Deprived of state funded employment many public sector employees would simply sit down in the dirt crying “Woe is me!” until either death claimed them, or an Obama-esque messiah came along and saved them.

    In fact one of the reasons the public sector is as big as it has become is because of the useful role it performs in giving unmotivated people something to do with their time.

  • Paul Marks

    It is indeed time to make redundent lots of American (and other) government employees.

    Not to dismiss them for any personal fault on their part – but to abolish their positions, by abolishing their departments.

    Getting rid of FUNCTIONS of government, is the real way to reduce government spending by the amount that needs to be saved.

  • llamas

    I suspect you were at Hillsdale last night for Mark Steyn’s lecture :-).

    (on a side note, and in a purely grandfatherly way, going to Hillsdale does always confirm theories which have been expressed here in the past about the relationship between political inclinations and female pulchritude.)

    I would take the excellent suggestion one step further and say, not only let go a mass of Government employees, but abolish their departments and agencies. This sends the important message that the things they used to do are not legitimate functions of government in the first place.

    llater,

    llamas

  • RRS

    P M & LL et al.,

    Absolutely, understanding the proliferation of functions assigned to governments (in the US, local, state and federal; in the UK local and parliamentary) are key to the continuing deterioration of conditions in the developed economies of the West.

    It bears repeating:

    Normative Libertarianism is framed by the impacts of the functions of governments on Liberty and thus to limit those impacts by limiting those functions.

    So we are taken to examine the historic trends of the last 50 years of particular interests to use the mechanisms of governments for ideological, economic and political objectives. What are the motivations of the individuals making up the various sectors of our societies that cause them to demand these uses of the mechanisms of governments?

    What has been the transformation in the members of the social orders that have led to the transformations of civil societies into governmental societies requiring the expansion of the administrative state?

    Does a broad enough spectrum of the members of our society desire a return to the dominance of civil society in preference to the uses that can be made of the mechanisms of governments? Currently, it does not appear so.

    There does not appear to be a broad appreciation of the impacts of the increasing functions of governments on liberty and that the seeking of the advancement of particular individual and group interests through the uses of the mechanisms of governments increase those functions and increase the limitations on liberty.

    Even economic and other catastrophes looming are recognized in the short time horizons of the particular interest that shape the motivations of today’s citizenry.

  • RRS

    That last paragraph should have read:

    not even economic and other catastrophes looming are recognized in the short time horizons of the particular interests that shaped the motivations of today’s citizenry.

  • SC

    >First, there is the direct cost of the salary, benefits and retirement of those employees, which must be sucked out of the rest of the economy through coercive taxation, weakening it. Each dollar we leave in the hands of ordinary people is a dollar they can then proceed to spend on things they really want, which is always better for the economy than a coerced expenditure.

    Sure, but the problem with this is that money saved on firing government employees wouldn’t, in reality, go back to the taxpayers. It would be used to pay down government debt. This is what is happening in the UK — public sector workers are being fired (not enough of them, of course), but the government has as a result just increased its debt payments (although of course debt is still rising, despite this).

    Maybe it’s a good idea to use this money to pay off debt rather than give it back to the taxpayer in the form of lower taxes (or whatever). Don’t know. But sacking government workers on masse would be easier if it was directly linked to a cut in taxes, or a payout to taxpayers. If taxes were to stay stay the same in such a case then the public would feel that it was somehow being cheated, because there would be less services (as the BBC and The Guardian would be screaming) for the same money (and the BBC and The Guardian would conveniently ignore the debt situation).

    It would have been easier to cut the public sector when times were better and the public could see the benefits in the form of lower taxes. But of course when times are good the left argues that this is a great time to raise government spending because we can afford it. So whatever the situation is, selling the idea of cutting government to the public is tough.

  • PersonFromPorlock

    Midwesterner (Wisconsin, USA)
    January 31, 2013 at 1:38 am

    In fact, if you fired enough of them you would actually cause a recession (which is defined as a decline in GDP for 2 consecutive quarters).

    Easy solution. Fire them all in the same quarter. Voilà! No recession.

    Brilliant!

  • Paul Marks

    The Guardian newspaper has a debt problem of its own – and the orgainsation (it is a form of trust) has just made a terrible mistake.

    It got a good offer to sell its auto-trading publication – but it rejected the offer as not enough.

    With the weakening economy – the payment it is offered is only going to go DOWN.

    The BBC….

    An organisation that should not exist.

    And I blame my own “tribe” for its continued existance.

    The BBC has been a leftist organisation for half a century (since “That Was The Week That Was” and so on in the early 1960s) yet the Conservative party has supported the continued existance of the BBC tax (the “license fee”).

    Defunding the left is vital (both in the media and in the education system), if “Conservatives” do not understand this basic fact they deserve to lose.

  • Jaded Voluntaryist

    They can’t sell Autotrader Paul, that would be killing the Golden Goose. Autotrader is the only part of the Guardian group that actually turns a profit. Without that thoroughly capitalist periodical financing their little leftwing soapbox, they’d all have to go and get real jobs.

    They’ll run Autotrader into the ground before they’d ever sell.

  • Paul Marks

    JV – you may well be correct.

    However, unless they get a large amount of cash from somewhere (such as selling Autotrader) it is hard to see them getting beyond the end of this year.

    Lots of “surprising” news from the United States of course.

    Output – down.

    Unemployment – up.

    At lots of Islamist terrorist attacks around the world (including on American targets).

    It is almost as if the media narrative (for the reelection of Comrade Barack) was a pack of lies.

  • stephen ottridge

    There are too many people working in America’s schools.

    From 1950 to 2009, the amount of full-time equivalent (FTE) employees grew 386 percent while the amount of public school students only grew by 96 percent, according to a recently released report from the Friedman Foundation for Educational Excellence.

    Looking even closer at the data reveals that the number of teachers increased by 252 percent during this time period, while administrators and other staff experienced growth of 702 percent – more than seven times the increase in students.

    Some states – like Iowa, Louisiana and Mississippi – even increased their staffs when their student populations were declining.

    The above is from this piece:

    http://illinoispolicy.org/blog/blog.asp?ArticleSource=5196

  • Paul Marks

    If there have to be government schools (and why should there have to be?) they should be 100% locally funded.

    If the funding is not 100% local then control by locally elected school boards (abolished in 1902 in England and Wales – and Schools were taken out of true local control in Scotland in the 1870s) is an illusion. And, of course, the only people allowed to vote in those School Board elections should be people who actually pay the local school tax.

    Of course the power of the unions is a factor – where the unions are allowed in things become hopeless, but even without the unions the natural trend is for government administration to expand and for the people attracted to such work to direct the schools more and more to the task of collectivist propaganda.

  • […] … for our current economic straits, from Samizdata: […]