8/19/2019 government consuming

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he Costs of Government

Robert P. Murphy*

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%Tryi&' to c#cu#te the (#!te o) 'oer&me&t by #y+i&' tot# e,pe&$iture! i! # poormetho$. A #r'e )r#ctio& o) 'oer&me&t !pe&$i&' co&!i!t! o) tr#&!)er!.%Critic! o) 'oer&me&t i&tere&tio& h#e poi&te$ out the (#!te o) re!ource! #!!oci#te$ (ith

#riou! pro'r#m! #&$ re'u#tio&!. Yet- ee& mo!t )#&! o) the )ree m#ret (ou$ be !urpri!e$to !ee ho( much richer the #er#'e Americ#& (ou$ be i) the 'oer&me&t re!tricte$ it!#ctiitie! to protecti&' citi+e&! )rom $ome!tic crimi! #&$ )orei'& #rmie!. I& thi! #rtice- I!etch out !ome o) 'oer&me&t/! bi'0ticet (e#th0$e!troyi&' #ctiitie! to come up (ith #rou'h e!tim#te o) ho( much poorer 1i' Goer&me&t m#e! the #er#'e citi+e&. The bottomi&e i! th#t 'etti&' ri$ o) just  the!e #ctiitie! (ou$ i&cre#!e the #er#'e Americ#&/! re#i&come by 23 perce&t i& # ery !hort perio$.Metho$oo'y

O&e metho$ )or 'e&er#ti&' # b#p#r e!tim#te i! to c#cu#te the )r#ctio& o) the eco&omy#b!orbe$ by 'oer&me&t #t # ee!. I& the 4th 5u#rter o) 6778- )e$er#- !t#te- #&$ oc#

'oer&me&t !pe&$i&' #ccou&te$ )or 9: perce&t o) ;.S. Goci&' up mur$erer!- te#chi&' mo!t i$! to re#$- etc.? i!cou&terb##&ce$ by the b#$ thi&'! it $oe! >oci&' up !pecu#tor! (ho promote m#rete))icie&cy- te#chi&' mo!t i$! th#t the Ne(

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Co&!umptio& #&$ I&e!tme&t Spe&$i&' #t B#riou! Goer&me&t Lee!

To #oi$ the probem o) !impe tr#&!)er!- (e c#& )ocu! o& 'oer&me&t purch#!e! o) 'oo$!#&$ !erice!. 1ut bec#u!e 'oer&me&t typic#y h#! hi'her e,pe&!e! to pro$uce #& e5ui#e&toutput- (e c#&/t tre#t 'oer&me&t purch#!e! #! e5ui#e&t to- !#y- # pri#te corpor#tio&/!

i&e!tme&t !pe&$i&'.

To proi$e !ome empiric# moori&'- (e c#& oo #t i&put er!u! output i& 026 !chooi&'.A&$re( Cou!o& rece&ty e!tim#te$ th#t the @#!hi&'to&-

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Accor$i&' to the 1ure#u o) Eco&omic Ay!i!- #&&u#i+e$ )e$er# &o&$e)e&!e purch#!e!(ere D9FF biio& i& the 4th 5u#rter o) 6778. St#te #&$ oc# 'oer&me&t! !pe&t D2-F3 biio&

 purch#!i&' 'oo$! #&$ !erice! $uri&' 6778.F I) (e #ppy the :70 perce&t $i!cou&t to the)e$er# )i'ure- #&$ # >(ei'hte$? 9:0perce&t )i'ure to the !t#te #&$ oc# e,pe&$iture!- (e comeup (ith #& e!tim#te$ >D9FFb& :7 D2F3b& 9:? J $813 billion i& (#!te$ re!ource!.

Sub!i$i+e$ Schooi&'

1eyo&$ the e,picit e,pe&$iture!- 'oer&me&t i&oeme&t i& !chooi&' h#! #&other #r'eco!tK 1y eepi&' miio&! o) !tu$e&t! coope$ up i& c#!!room! (ho (ou$ other(i!e be(ori&' )or p#y- m#&$#tory #tte&$#&ce #(! #&$ !ub!i$ie! )or po!t0!eco&$#ry !chooi&'!uppre!! eco&omic #ctiity.

O) cour!e- there i! # pote&ti# tr#$eo)) i& (hich #tte&$#&ce #(! #&$ !tu$e&t #i$ re$uce pote&ti# output )rom you&' (orer! #! they !t#y o&'er i& !choo- but e#$ to hi'her output#)ter they h#e 'r#$u#te$ (ith better !i!. Ho(eer- it i! &ot obiou! th#t the m#!!ie

'oer&me&t !upport )or !chooi&' #ctu#y yie$! # more0educated  popu#tio&- p#rticu#ry #!the e$uc#tio& pert#i&! to o&0the0ob !i!. I&$ee$- # e#$i&' eco&omic mo$e i&terpret!coe'e #&$ #$#&ce$ $e'ree! #! !i'! to the empoyer o) the #ptitu$e o) # p#rticu#r!tu$e&t.3 M#&y bu!i&e!!e! (i p#y # hi'h !t#rti&' !##ry to # 4.7 hi!tory m#or )rom H#r#r$-&ot bec#u!e they &ee$ !omeo&e (ith # thorou'h &o(e$'e o) me$ie# Europe- but bec#u!ethe type o) !tu$e&t (ho #chiee! thi! (i prob#by !uccee$ i& m#&y ob e&iro&me&t!.

To the e,te&t th#t thi! %!i'i&' '#me% ch#r#cteri+e! )orm# e$uc#tio&- !chooi&' i! ie #&#rm! r#ce bet(ee& !tu$e&t!. I) they cou$ coectiey #'ree to !pe&$ e!! time i& !choo= (ith )#r )e(er peope 'oi&' o& to 'r#$ !choo #&$ (ith )e(er peope t#i&' it )or 'r#&te$ th#t%eerybo$y !hou$ 'o to coe'e%=the& empoyer!/ e,pect#tio&! (ou$ #$u!t. Stu$e&t!- o&#er#'e- (ou$&/t be hurt i& their c#reer pro!pect! #&$ (ou$ '#i& by h#i&' the optio& to!t#rt their c#reer! e#rier.

Thi&'! (ou$ be better )or the !tu$e&t! (ho rem#i&e$ i& !choo- too. A! # )ormer coe'e pro)e!!or- I (ou$ h#e much pre)erre$ prep#ri&' to te#ch- !#y- the top h#) o) my !tu$e&t! i&e#ch c#!!- to h#i&' to c#ter to the o&e! (ho #(#y! #!e$- %@i thi! be o& the e,#m% 8

Let u! #rbitr#riy #!!ume th#t (ithout 'oer&me&t e&cour#'eme&t- e&rome&t i& coe'e #&$'r#$u#te pro'r#m! (ou$ )# by h#)- #&$ th#t thi! !hi)t (ou$ yie$ # citi+e&ry >o& #er#'e?

 u!t #! e$uc#te$. @ith the!e #!!umptio&!- the i&cre#!e i& output )rom h#) o) the curre&t

e&roe$ !tu$e&t! e&teri&' the (or)orce (ou$ be # pure '#i&.

I& 2888- there (ere 26. miio& Americ#&! e&roe$ i& u&$er'r#$u#te $e'ree0'r#&ti&'i&!titutio&!. I) (e #!!ume th#t h#) o) the!e you&' peope (ou$ 'et ob! e#r&i&' D67-777 o&#er#'e- (ere it &ot )or 'oer&me&t !upport- (e c#& #$$ #&other $126 billion to our t#y. I)(e #!!ume th#t h#) o) the 2.3 miio& e&roe$ i& 'r#$u#te pro'r#m! cou$ 'et ob! e#r&i&'D9:-777 o& #er#'e- (e c#& #$$ #&other $32 billion.27

Miit#ry Spe&$i&'

O&e o) the bi''e!t compo&e&t! o) )e$er# !pe&$i&' i! the miit#ry bu$'et. I&cu$i&'

!uppeme&t# )u&$i&' )or the oper#tio&! i& Ir#5 #&$ A)'h#&i!t#&- tot# miit#ry !pe&$i&' )or"i!c# Ye#r 6727 (i prob#by be !ome DF67 biio&.22

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It i! $i))icut to e#u#te thi! #!pect o) 'oer&me&t #ctiity bec#u!e there i! &o obiou! pri#te0!ector #o' to the oper#tio&! o) the 6774? co&cu$e$th#t 2F perce&t o) # t#, cut o& #bor i&come #&$ :7 perce&t o) # cut o& c#pit# t#,e! #reee&tu#y recoupe$ throu'h hi'her eco&omic 'ro(th.24 1ec#u!e mo!t t#,e! )# o& #borr#ther th#& c#pit#- (e (i #!!ume th#t #&y t#, cut (i yie$ &e( i&come >throu'h 're#tereco&omic #ctiity? e5u# to 6: perce&t ># )#ctor (ei'he$ to(#r$ 2F perce&t r#ther th#& :7

 perce&t? o) the !i+e o) the t#, cut.

Tot# )e$er# t#, receipt! i& 6778 (ere D6.2 triio&.2: I) the )e$er# 'oer&me&t re!tricte$it!e) to proi$i&' $e)e&!e >%"ortre!! Americ#%?- m#i&' !ure the pre!i$e&t h#$ # !h#rp(#r$robe- #&$ # )e( other b#re0bo&e! )u&ctio&!- it (ou$ h#e !pe&t o&y- !#y- D677 biio& i&6778- #o(i&' )or #& imme$i#te t#, cut o) D2.8 triio&. St#te #&$ oc# 'oer&me&t! coecte$D2.8 triio& i& receipt! i& 6773.2 I) (e #!!ume h#) o) curre&t !t#te #&$ oc# !pe&$i&' cou$

 be eimite$ by # retur& to the tr#$itio roe o) 'oer&me&t- th#t (ou$ #o( #& #$$itiot#, cut o) #mo!t D2 triio&.

Sc#i&' b#c 1i' Goer&me&t (ou$ there)ore #o( #& imme$i#te t#, cut o) D6.8 triio&.

@ith our (ei'hte$ 6: perce&t )#ctor- th#t me#&! the eco&omy (ou$ be #& #$$itio >D6.8t&

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6:? J $725 billion richer- i) bu!i&e!!e! #&$ i&$ii$u#! $i$&/t h#e to )or)eit !uch # #r'e!h#re o) their output to the 'oer&me&t.

Category Amount

Ciii#& Purch#!e! @#!te- A Lee! D329 biio&

;&$er'r#$u#te Oer0E&rome&t D26 biio&Gr#$u#te Oer0E&rome&t D96 biio&E,ce!! Miit#ry Spe&$i&' D:F7 biio&"e$er# I&come T#, Compi#&ce D977 biio&

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See the @iipe$i# e&try o& the Tiebout mo$e.

. 

See )or e,#mpe 2888?- Antitrust: The Case for Repeal - ##i#be i& .p$). See #!o "re$McChe!&ey/! #rtice- A&titru!t- i& The Concise Encyclopedia of Economics.

F. 

"or the 1EA )i'ure!- !ee the "RE< ch#rt o& )e$er# &o&$e)e&!e co&!umptio& #&$ i&e!tme&t e,pe&$iture!- #&$ the"RE< ch#rt o& !t#te #&$ oc# e,pe&$iture!. "e$er# Re!ere 1#& o) St. Loui!.

3. 

O&e o) the !emi re)ere&ce! i& thi! )ie$ i! %Qob M#ret Si'i&'%  by Mich#e Spe&ce. The Quarterly Journal of Economics- Bo. 3F- No. 9- Au'u!t 28F9- pp. 9::09F4.

8. 

A 'oo$ $i!cu!!io& o& thi! topic i! The Chro&ice o) Hi'her E$uc#tio&- %Are Too M#&y Stu$e&t! Goi&' to Coe'e%-  Noember 3- 6778.

27. 

"or the e!tim#te! o) u&$er'r#$u#te #&$ 'r#$u#te e&rome&t- !ee the T#be! 233 #&$ 238 o) the

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#rtice?- the& the D6. triio& i& c#cu#te$ !#i&'! !hou$ be $ii$e$ by # !m#er G