This lack of understanding, and dedication to a narrative that suggests government can crowd out the private sector, whose activities must always be considered of greater virtue than those of government,
The contention is that sometimes the private sector stuff will have greater virtue. As will also be true, that sometimes government will.
The trick is in telling which is which.
As to whether government can crowd out. So, the NHS decidedly limits the private sector influence and activity in health care. The point of having the NHS being to limit the private sector activity in health care. So, you know, it’s pretty obvious that crowding out can happen, no?
So Government policy is always virtuous? Has any GDR spy asked him about the invasion of Libya yet?
Spud rails on at how any current government’s policies are bad and at the same time assumes the government always knows best. The contradiction is wonderful to behold.
CD
Yes. But no contradiction is apparent to his unicellular brain, for he always imagines that he himself would be the government that knows best – and he believes he is infallible. Denial of his infallibility entails an anathematising ban on commenting on his blog.
To be fair, Mr. Murphy’s article refers to financial crowding out, which is based on the loanable funds fallacy.
When the economy is operating below capacity, government spending crowds in private investment. When at full capacity, resource limits means that trade-offs have to then be made.
Because deficits are the norm, not the exception, attempting to balance the budget will send the economy into recession. With that, tax revenues fall while welfare payment rise, and the deficit increases that way.
Either way, it is the non-government sector which determines the government’s fiscal balance. For those who like math, here is the sectoral balances equation:
(G – T) = (S – I) + (M – X)
It’s easy to say you want a balanced budget, i.e., (G = T), but then you have to ask what those two others sectors of the economy are doing there on the right side of that equation.
“When the economy is operating below capacity, government spending crowds in private investment. When at full capacity, resource limits means that trade-offs have to then be made.”
In that case explain the healthcare situation then. Within the healthcare economy there is obviously a massive demand for healthcare, as evidenced by the ever increasing waiting lists for NHS treatment. Why then is the private sector not taking up the slack? Surely all that NHS spending should be ‘crowding in’ lots of private investment? There should be private GPs on every corner and private hospitals touting for business like mad, surely?
“Because deficits are the norm, not the exception, attempting to balance the budget will send the economy into recession. ”
Thats would be why running a Budget Surplus has resulted in a permanent recession in Germany then……………..
Jim ” explain the healthcare situation then.”
Not operating below Capacity. Demand for ‘free’ healthcare has no limit, the supply of healthcare people is only met by imports, impoverished by paying taxes for all this there is not much money left for going private.
Jim,
As for crowding in, that refers to the whole economy. I assume that there is some law that prevents the private sector from competing with the NHS. We have that law here in Canada where we have single-payer health care.
“Thats would be why running a Budget Surplus has resulted in a permanent recession in Germany then……………..”
The accounting identities always hold true, but they do so at the global level. Germany can run surpluses because of the profligate spending of countries like Greece. Hence, that trade surplus for Germany which is the third term in the accounting identity I stated. For Germany, X > M. If that trade surplus is large enough, it allows both the German private sector and the German government to save, i.e., S > I and G > T. Of course those saving are draining out of countries like Greece.
“it allows both the German private sector and the German government to save, i.e., S > I and G > T.”
That should say T > G.