The Top 16 Things Governments Do to Build Economies
A lot of conservatives think that they need to get the government out of the economy.
Free markets are more efficient than state bureaucrats. Governments just produce government waste. If we didn’t have a government, capitalists could just act with economic rationality and we would all be a lot richer and more prosperous.
Ingratitude is a basic human emotion.
No one remembers what anyone else does for them.
Nobody forgets what anybody else does to them.
People are so busy sulking about everything they don’t like about government that they forget about all of the benefits that government has given them.
So here is a memory pad for the forgetful. It is a list of the top sixteen things that governments do to keep our economy from falling apart.
1. Protecting private property from violent crime. Who protects trucks from being robbed on the highway? The police.
2. Protecting businesses from fraud. Who protects fraud artists from reneging on all their contracts? The courts. Who protects businessmen from customers and vendors who lie to them? Also, the courts.
3. Protecting businesses from counterfeit money. The U.S Mint. Someone has to print those elaborate bills that are too hard to fake.
4. Protecting businesses from bank failures. In the Great Depression, a lot of individuals and businesses were ruined when their banks went under. Financial regulation is designed to keep that from happening again.
5. Providing businesses with an educated labor force. It is a lot harder to run an advanced technological economy with a labor force that cannot read or write. A little advanced science wouldn’t hurt either.
6. Protecting inventors from copycats through the patent system. If the government did not have laws against piracy, corporations could not afford to invest in new technology because other firms would steal their innovations.
7. Paying for basic scientific research that companies can use for practical technological applications afterwards. Investing in basic science is a money loser because most scientific studies don’t have immediate applications. But strong science produces the one-in-a-million discoveries that lead to dramatic breakthroughs and new products. Government funding of research provides the base pool from which the one-in-a-million studies are drawn.
8. Providing basic transportation infrastructure such as airports, highways and ports. Visit an underdeveloped country with lousy infrastructure. Look at the trucks trying to navigate potholed one-lane and two-lane roads to get to a port that will have a back-up of three weeks. Fast, efficient delivery makes a difference.
9. Providing government spending to pull the economy out of depression. The Great Depression ended only when the U.S., England and Germany committed to big government spending. (It was war spending but it still worked.) Western Europe in the 2000’s went through a decade of high unemployment because their governments would not spend. Stimulus spending really works.
10. Managing the money supply to control inflation. Inflationary periods only end when the government takes action to pull back the money supply. In a free market, hyperinflationary episodes would just go on and on and on.
11. Defending American commercial interests overseas. It is hard for American companies to do business in the rest of the world if kidnappers can attack businessmen or terrorists can attack facilities. It is also hard to do business if foreign governments are passing laws that hurt American interests. The military protects against physical force threats. The diplomatic force protects against gentler civilian threats.
12. Engaging in offensive war to obtain resources for American business. The United States typically uses more subtle means. However, we have had the occasional war to advance American economic interests.
13. Conserving scarce natural resources for long term economic use. Business people can and do complain about ecological restrictions. However, some ecological policies have been intelligent investments in long term prosperity. Reducing overfishing of the North Atlantic fishing banks has insured a supply of North American fish that will last for decades. The government-financed clean-up of the industrial pollution in the Great Lakes improved the quality of life for the Midwestern states; it also created a real estate bonanza on the Great Lake shores.
14. Saving local business from foreign competition. Protecting American jobs may mean shielding local companies and workers from foreign competition. Only government can save a local economy from being undercut from a flood of cheap imports.
15. Providing disaster relief. Some natural and economic disasters do far more damage than can be covered by insurance. Sometimes economies are wiped out by storms or physical calamities. Sometimes economies are wiped out by speculation and financial busts. In either case, government often facilitates economic recovery by providing assistance to individuals and companies who have lost everything through no fault of their own.
16. Investing in the new technologies of tomorrow. People forget how much useful technology was actually developed by the government. The Internet was originally developed and financed by the Defense Department as a system for moving high security datasets from one computer to another. Radar was also developed by the military for immediate use in air warfare. Other countries have had equally impressive results from government investment in technology. Brazil has one of the strongest steel industries in the world. Almost all of that came from the government paying to develop metallurgy and metallurgical equipment suitable for Brazil’s deposits.
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There are actually more than sixteen things that governments do to produce economic growth. If you don’t like these, you can go to my essay “State and Development” in the Handbook of the Sociology of Development (Gregory Hooks and Samuel Cohn, editors – University of California Press, 2016) for an even longer list of positive economic benefits of government. You can also find some negative effects of government too. (Corruption can be a significant issue. Plus, some governments really are pathological.)
But overall, normal government activity tends to promote economic growth. People who want to smash the state, cut all taxes and live in anarchic dog-eat-dog freedom don’t fully appreciate just how rotten the economy would be under such a system. Standards of living for both rich and poor would collapse.
Government can certainly be reformed to eliminate inefficiencies or abuses. But shutdowns are rarely a good idea.
You know the old song
Don’t It Always Seem To Go
That You Don’t Know What You Got Till Its Gone.
That applies to big government.