This is a very important thing to understand. We are told over and over that government spending creates jobs and that through the multiplier effect the economy can then blossom. But time after time after time we see that this does not happen. Yet many still believe that something can be had for nothing. Many very respectable people believe like members of a cult. The cult of Keynes.
There is no such thing as a free lunch. Everything has a cost. When government spends it takes from the private economy. It takes resources which will almost undoubtedly be used more efficiently by the private sector. These funds are then strained through government creating waste along the way.
Government competes with the more efficient and dynamic private sector for resources. There is no multiplier and according to Ms. Baum (hardly a dyed in the wool Austrian) such government spending isn’t even a wash. Often is a drain on the economy.
You know it. We know it. But it’s always good to see people at Bloomberg and the IMF coming around.
Time to put Mr. Keynes back in the ground.
The authors of a June 2013 IMF working paper, “Does Public-Sector Employment Fully Crowd Out Private-Sector Employment?,” answer in the affirmative. After examining data from both developing and advanced economies, Alberto Behar and Junghwan Mok find that a public-sector job comes at the expense of a private-sector job. In other words, paying someone to dig holes and fill them up doesn’t reduce unemployment.