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Which Is Better: Government or Private Spending?

Vice President Joe Biden checks out his purchases during a visit to a Costco store on a shopping trip in Washington recently. Photo by Saul Loeb/AFP/Getty Images.

Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Thursday’s query:

Don Buchholtz: I find it frustrating in the discussion about federal spending that there is an implication that public spending is almost like taking money and burning it. Surely government spending is not so unlike any other spending — Medicare goes to doctors, nurses and hospital administrators, discretionary spending to government “bureaucrats,” all of whom then save or spend the money on dishwashers or movie tickets or whatever. What IS the economic difference between government spending and private spending, and why should we be concerned about it?

Paul Solman: Ah yes, a deep question, Don. One blazing dispute would seem to be over choice. If you or I spend our money privately, we choose to do so. When “the government” spends our money, others do the choosing for us, even if we supposedly chose those others to represent us. Remember the battle cry of President George W. Bush to justify his tax cuts: “It’s your money.” Remember how it resonated, or at least was boom-box amplified?

To be sure, there is another way to look at the problem, sketched by President Obama in the campaign speech in which he said, “If you’ve been successful, you didn’t get there on your own… If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges.” He then uttered the fateful line, “If you’ve got a business — you didn’t build that.” The very next sentences: “Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet. The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own.”

President Obama was making at least two points that speak to the argument over government spending. First, it is not just your money. We all earn what we earn because of collective investments made on our behalf — from public schools that educate us to the legal system that protects us to the fire fighters who keep us alive.

The second point: a certain amount of government spending is an investment without which an economy cannot function at all. The argument, then, isn’t over government spending, yes or no, but: how much government spending?

As you observe, Don, a government dollar circulates through the economy just like a private dollar. But is the passage inefficient, even corrupt at times? Is the money spent by know-it-all bureaucrats who know naught of business? Would it be better spent by profit savvy businesspeople, doggedly “in pursuit of the almighty dollar” (a phrase first used in 1871 by the immensely popular novelist Edward Bulwer-Lytton, better known for his famous opening line: “It was a dark and story night”).

More and more, it seems, these two positions divide us. At one extreme is Denmark, where well over half of all spending is done by government, and yet its people report themselves the happiest in the world. At the other extreme, in terms of government spending as a percentage of wealth, is us, with income per person 20 percent higher than Denmark’s and a tradition of entrepreneurship and business-building that has undergirded “American exceptionalism” for a couple of centuries now.

So what’s the right choice? I am reminded of a phrase surely not written by Bulwer-Lytton: You pays your money and you takes your chance.

This entry is cross-posted on the Rundown– NewsHour’s blog of news and insight.

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