August 20th, 2015
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“My reading of history convinces me that most bad government results from too much government.”
– Thomas Jefferson
This week, I am again going to give you a break from “the dismal science” – economic concepts. I want to take some time to discuss a travesty that many Americans actually consider a good thing (when it fact it hurts The Future of our Wealth!).
My wife and I recently took our kids to Washington, DC, to tour our nation’s capital. As a point of reference, I studied at American University (in D.C) and spent over a decade there; so I have some credibility about what I am about to say. During our visit, what struck me was how the city had changed since I had lived there. All I could think was, “Washington is now ‘Boomtown USA!’” The growth and prosperity I saw was astounding! “How could so much wealth have been created in a city where government is the main industry?” After all, since I had left DC 17 years ago, the US economy had grown much slower than the 17 years prior (when US Annual GDP growth had been 50% higher than it has been since then)[i]. However, Federal spending (as a percent of GDP) has grown faster than the economy over the past couple of decades. My conclusion is that Washington DC is definitely enjoying more than its “share” of prosperity.
Big government does not help the middle class; it stifles growth and economic opportunity by sucking up resources that could be put to more productive uses.
In fact, small and start-up companies are the engine of economic and employment growth[ii]. However, increasing regulations (as well as complex tax laws and other barriers to entry) disproportionally impact smaller businesses. Basically, while government has grown, new business formation has plummeted.
Also, you can see that in recent years, the growth of incomes in the DC area, far outpace the rest of American. Talk about income inequality! Check this out!
Compounding this, the District has one of the highest levels of income inequality among the nation’s cities[iii], which means that not only is the per-capita income growing much faster in the Nation’s Capital, it’s growing disproportionately faster for the “haves” versus the “have-nots.”
So when politicians disparage the income inequality in the private sector of America, they should consider the acute income inequality they perpetuate in their own community (without producing any real products or services for that same community).
Moreover, six of the wealthiest 10 counties in the Unites States are located in the DC Metropolitan area[iv]. All of this wealth from a place which produces very little goods and services for the country! Just a bunch of industries that live off of federal revenues (your taxes) and redistributes the wealth created in the private sector to others (after taking a large cut for themselves).
In the DC metro area, the federal government IS the largest industry. After government, tourism is a very important industry. The other main industries include trade associations, research, education, medicine, government-related research, publishing, international finance and a number of corporation’s world headquarters (most of which are located there to lobby the federal government for special privileges).
It is time for Americans to prioritize who is to be vilified for a struggling middle class. Government is a monopoly that has no one to hold it accountable. And since they make monetary policy and choose how much of your money you get to keep, if they need more, they just decide we can keep less of our hard-earned money by raising taxes somewhere. Since there’s no competition, what makes you think they worry about efficiencies, cost, customer service and results? They don’t. A great example was the Obamacare, multi-million dollar website that didn’t work, because of crony capitalism.
So when we’re thinking about how to help the middle class and the average American, Shrinking Big Government should be our first goal to a renewed American Prosperity. After all, if they are smaller, they spend less; hence they need less of OUR money (Taxes) to operate; and that’s great for the Future of Your and My Wealth!
[i] US Bureau of Economic Analysis; US GDP Annual Growth Rates 1980-2014.
[ii] “The Importance of Young Firms for Economic Growth” – Wiens and Jackson (The Kaufmann Foundation), September 24, 2014