Government spending absorbs national saving. Unless those resources are used in a value-adding way, the economy becomes worse off rather than better off. Spending of itself is not the road to growth. Only spending that creates more value than is used up during production leaves you ahead. We in the supposedly capitalist economies of the West are systematically ruining our economies because our governments waste our resources at prodigious rates rather than creating value or leaving those resources to be used by those who can. The United States is in the midst of turning itself into the Argentina of the twenty-first century. And as Exhibit A, let me take you to these passages from a recent column by Peter Costello, a great Treasurer because he understood these issues intuitively and with great clarity. Here he is discussing what was unmistakeable on a fight from New York to Hong Kong:
The real thing that was troubling me on that long flight to Hong Kong was why countries like the United States do infrastructure so badly when places like Hong Kong do it so well. When I flew out of New York’s Kennedy Airport, the Airtrain wasn’t working. Passengers had to bus from one Terminal to another. People were squeezed in excess of safety limits, more like battery hens than human beings. The security staff were surly and difficult. The planes were late and the terminal was rundown.
Flying into Hong Kong was like returning to the developed world. The terminal is connected to the city centre by a fast rain. Massive purpose-built suspension bridges and tunnels link it by road. Hong Kong reclaimed the land to build the airport from the sea — just as it has for other major developments.
Both these airports are owned by government authorities. Before someone tells you that we need higher taxes to pay for more infrastructure just remember that Hong Kong, with its airport and its first-class Mass Transportation System, has one of the world’s lowest tax rates, with a top income tax rate of 17 per cent and no GST.
I suspect that Hong Kong airport may be like the Moscow subway, a much more ornate facility than would be justified by the return alone and heavily subsidised as a showpiece to the world. Whether other less visible infrastructure spending in Hong Kong is equally substantial I would have my doubts. But the airport in New York is falling to bits because the capital required for mere maintenance is unavailable because so much of it is already being wasted by governments. There is an immense amount of capital in the US to get through, but Obama and the Democrats, ably assisted by the Republicans, are wasting their inheritance. Ten more years of this and it will be a poor country, as much of the country already is. There are huge lessons for us if we have the wit to understand them. I only say again that modern textbook economic theory will explain almost none of this.
Picked up at Andrew Bolt.